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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 27, 1998
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-21587
PJ AMERICA, INC.
(Exact name of registrant as specified in its charter)
Delaware 61-1308435
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2300 Resource Drive
Birmingham, Alabama 35242
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(Address of principal executive offices)
(205) 981-2800
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
(Name of each exchange
(Title of Each Class) on which registered)
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None None
Securities registered pursuant to
Section 12(g) of the Act:
Common Stock, $.01 par value The Nasdaq Stock Market
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
form 10-K. [ ]
As of February 4, 1999, there were 5,779,410 shares of the Registrant's
Common Stock outstanding. The aggregate market value of the shares of
Registrant's Common Stock held by non-affiliates of the Registrant at such date
was $85,455,745 based on the last sale price of the Common Stock on February 4,
1999 as reported by the Nasdaq Stock Market. For purposes of the foregoing
calculation only, all directors and executive officers of the Registrant have
been deemed affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Part III are incorporated by reference from the Registrant's
Proxy Statement for the Annual Meeting of Stockholders to be held May 25, 1999.
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TABLE OF CONTENTS
PART I
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Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
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Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 7a. Qualitative and Quantitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
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Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
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Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
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PART I
Item 1. Business
General
PJ America, Inc. (the "Company") is the largest franchisee of "Papa John's"
pizza delivery and carry-out restaurants. At December 27, 1998, the Company
operated 119 Papa John's restaurants in nine states and Puerto Rico. In 1998,
the Company opened its first restaurants in California, Oregon, Washington and
Puerto Rico. The Company also opened a commissary in Puerto Rico in December
1998. At December 27, 1998, Papa John's International, Inc. ("PJI") and its
franchisees (including the Company) operated 1,889 Papa John's restaurants in 45
states, the District of Columbia and International.
Strategy
The Company's objective is to become the leading chain of pizza delivery
restaurants in each of its targeted markets. To accomplish this objective, the
Company has developed a strategy designed to achieve high levels of customer
satisfaction and repeat business, as well as to establish recognition and
acceptance of the Papa John's concept. The key elements of the Company's
strategy include:
Focused High Quality Menu. Papa John's restaurants offer a focused menu of
high quality, value-priced pizza, breadsticks and cheesesticks, as well as soft
drinks. Papa John's original, medium thick crust is made from fresh dough (never
frozen) produced in PJI's regional commissaries. Every pizza is prepared using
real mozzarella cheese, pizza sauce made from fresh-packed tomatoes (not
concentrate), a proprietary mix of savory spices and a choice of high quality
meat and vegetable toppings in generous portions. The Company offers thin crust
pizza in all of its markets.
Purchasing and Distribution. PJI's commissary system supplies pizza dough
and other food and paper products twice weekly to each of its franchised
restaurants. PJI currently operates ten regional commissaries across the United
States. PJI also operates one distribution center in Dallas, Texas. PJI expects
to open new commissaries and distribution centers as PJI and its franchisees
expand into new territories. PJI's commissary system enables it to closely
monitor and control product quality and consistency, while lowering food and
operating costs for its franchisees. All Papa John's restaurants are required to
purchase a proprietary mix of savory spices and dough from PJI. Franchisees may
purchase other goods from approved suppliers or PJI, which has negotiated
purchasing agreements with most of its suppliers. The Company believes that
these agreements enable it to benefit from volume discounts which result in
prices the Company believes are below those which it could otherwise obtain. In
addition, all the equipment, counters and smallwares required to open a Papa
John's restaurant are available from PJI. PJI also provides layout and design
services and recommends subcontractors, signage installers and telephone systems
to its franchisees. Although not required to do so, the Company purchases
substantially all of its food products and restaurant equipment from PJI.
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In December 1998, the Company opened its own commissary in Puerto Rico to
service its Puerto Rico restaurants. The Company expects to be able to purchase
product from PJI suppliers under the same terms and prices as PJI's
commissaries.
The Company is leasing the building for the commissary, and the capital
investment for improvements and equipment is approximately $.8 million.
Commitment to Employee Training and Development. The Company is committed
to the development and motivation of its employees through on-going training
programs, incentive compensation and opportunities for advancement. The Company
offers financial and stock incentives to employees at various levels based on
the achievement of performance goals. The Company's growth also provides
significant opportunities for advancement. The Company believes these factors
create an entrepreneurial spirit throughout the organization, resulting in a
positive work environment and motivated, customer-oriented employees.
Marketing Programs. The Company's restaurant-level marketing programs
target the delivery area of each restaurant, making extensive use of distinctive
print materials in direct mail and store-to-door couponing. Local marketing
efforts also include a variety of community-oriented activities with schools,
sports teams and other organizations. In markets in which the Company has a
significant presence, local marketing efforts are supplemented with radio and
television advertising. The Company anticipates expanding television advertising
in 1999, as the market penetration in its existing markets has increased.
Unit Economics
The Company believes its unit economics are exceptional. The 73 restaurants
that were open throughout the entire 1998 fiscal year generated average sales of
$774,000, average cash flow (operating income plus depreciation) of $147,000 (or
19.0% of average sales) and average restaurant operating income of $126,000 (or
16.3% of average sales). Sales and profitability in the initial months of
operations, historically have been lower than for mature restaurants.
The average cash investment, including franchise fees for the 46
restaurants opened and acquired during the 1998 fiscal year was approximately
$255,000, exclusive of land and pre-opening costs. The Company expects the
average cash investment for restaurants to be opened in 1999 to be approximately
$260,000 and anticipates that the new restaurants to be opened in 1999 will
primarily be in California, Oregon, Puerto Rico, and Utah, which are all new
markets for Papa John's Pizza.
Expansion and Site Selection
The Company's growth strategy will focus on further developing the Papa
John's concept through (i) building out its existing markets; (ii) acquiring and
developing new territories; and (iii) strategically acquiring existing Papa
John's franchisee groups and territories, if available. The Company's objective
is to become the leading chain of pizza delivery restaurants in each of its
targeted markets. Through a market-by-market expansion strategy focused on
clustering restaurants, the Company seeks to increase consumer awareness and
take advantage of operational and advertising efficiencies. During fiscal 1998,
the Company opened 25 restaurants and acquired
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21 restaurants. In 1999, the Company expects to open approximately 32 additional
restaurants primarily in California, Oregon, Utah, and Puerto Rico. As part of
its overall growth strategy, the Company intends to supplement its new
restaurant development through acquisitions of existing Papa John's franchisees.
The Company has entered into development agreements for all of its existing
markets. Pursuant to such agreements, the Company is required to open 32 and 29
restaurants in 1999 and 2000, respectively.
The Company also has a right of first refusal with a term of five years
beginning September 1, 1996 to acquire from an affiliate of the Company, the
operations and development rights for Papa John's restaurants in Iowa, including
the Moline and Rock Island, Illinois areas (but excluding the Council Bluffs
area of Iowa), in which 13 restaurants are currently open and development rights
with respect to such territory provide that a total of 17 additional Papa John's
restaurants will be opened through 2002. There are no agreements, however, with
respect to the Company's acquisition of such territory, and there can be no
assurance that such territories will be acquired. PJI has waived its right of
first refusal with respect to the Company's possible acquisition of the Iowa
territory described above. In addition, certain officers, directors and
stockholders of the Company own interests in Papa John's franchisees that
operate in certain areas in Michigan, Ohio and South Carolina. PJI has waived
its right of first refusal with respect to the Company's possible acquisition of
such franchisees.
The Company devotes significant resources to the investigation and
evaluation of potential sites. The site selection process focuses on trade area
demographics, target population density, household income levels and competitive
factors. Management inspects each potential Company restaurant location and the
surrounding market before a site is approved. The Company's restaurants are
typically located in strip shopping centers or free-standing buildings that
provide visibility, curb appeal and accessibility. All site selections must be
approved by PJI. Papa John's restaurant design may be configured to fit a wide
variety of building shapes and sizes, thereby increasing the number of suitable
locations for Papa John's restaurants.
Menu
Papa John's restaurants offer a focused menu of high quality, value-priced
pizza, breadsticks and cheesesticks, as well as soft drinks. All Papa John's
original medium thick crust pizzas are prepared using fresh dough (not frozen)
made from high protein wheat flour, real mozzarella cheese, pizza sauce made
with fresh-packed tomatoes (not concentrate), a proprietary mix of savory spices
and a choice of high quality meat and vegetable toppings in generous portions.
Fresh onions, green peppers and mushrooms are chopped daily at all restaurants
and are purchased from local produce suppliers. Each pizza is complemented by a
container of Papa John's special garlic sauce and two pepperoncinis. The Company
believes its focused menu helps create a strong identity among consumers and
simplifies operations, resulting in lower operating costs, improved food quality
and superior customer service. The Company offers a thin crust pizza in all of
its markets.
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Marketing Programs
The Company has restaurant-level marketing programs which target the
delivery area of each restaurant, making extensive use of distinctive print
materials in direct mail and store-to-door couponing. The Company tailors its
store-to-door coupons according to customer buying habits as tracked by the
Company's point-of-sale computer systems used in each restaurant. Local
marketing efforts also include a variety of community-oriented activities with
schools, sports teams and other organizations. The Company currently supplements
its local marketing efforts with a limited amount of radio and television
advertising. The Company anticipates expanding television advertising in 1999,
as the market penetration in its existing markets has increased. The Company
believes that its marketing programs are cost-effective and significantly
increase Papa John's visibility among potential customers. The Company's
advertising expenditures as a percentage of restaurant sales for 1998 were 6.7%.
The Company's restaurant-level marketing efforts are supported by print and
electronic advertising materials that are produced by the Papa John's Marketing
Fund, Inc. (the "Marketing Fund") for use by both PJI and its franchisees. The
required Marketing Fund contribution is established from time to time by the
governing board of the Marketing Fund and is currently 1.0% of restaurant sales.
The maximum required contribution for PJI franchisees is 1.5% of restaurant
sales and can be increased above 1.5% only upon approval by not less than 60% of
Marketing Fund members. In addition, PJI may require the Company to participate
in an advertising cooperative for its designated market area and to contribute a
minimum amount of restaurant sales for local advertising. PJI also provides each
of its franchisees with catalogs for uniforms and promotional items and pre-
approved, print marketing materials that can be ordered from PJI.
Restaurant Operations
Management and Employees. A typical Company restaurant employs a restaurant
manager, two or three assistant managers and approximately 25 hourly employees,
most of whom work part-time. The restaurant manager is responsible for the day-
to-day operation of the restaurant and for the maintenance of Company
established operating standards. The Company seeks to hire experienced
restaurant managers and staff and motivate and retain them by providing
opportunities for advancement and performance-based financial incentives. In
addition, the Company established the 1996 Stock Ownership Incentive Plan, which
will enable the Company to provide long-term equity-based incentives for
corporate and restaurant management personnel. The Company believes that it has
a low managerial turnover rate in comparison to the quick service restaurant
industry and that this low turnover rate results in decreased training costs and
higher productivity.
The Company employs area supervisors, each of whom has responsibility for
overseeing four to six Company restaurants. The Company also employs regional
operations directors who oversee area supervisors and managers within their
respective markets.
Training. The Company has full-time training coordinators in the Alabama,
Virginia and Utah markets. In addition, PJI provides an on-site training team as
needed. Each regional area supervisor and restaurant manager is required to
complete PJI's two-week training program in which instruction is given on all
aspects of PJI's systems and operations. The program includes
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classroom instruction and hands-on training at an operating Papa John's
restaurant. In addition, the Company has developed a specific education and
safety program for its delivery drivers.
Point-of-Sale System. All of the Company's existing restaurants are
equipped with the Papa John's PROFIT System. The Company believes that this
technology increases speed and accuracy in order taking and pricing, reduces
paperwork and allows the restaurant manager to better monitor and control food
and labor costs. The point-of-sale system enhances restaurant-level marketing
capabilities through a database that provides information on customers and their
buying habits with respect to the Company's products. The Company is able to
obtain current restaurant reporting information, thereby improving the speed,
accuracy and efficiency of restaurant-level reporting.
Reporting. Managers at restaurants prepare daily reports of sales, cash
deposits and operating costs. Physical inventories of all food and beverage
items are taken daily. The Company's area supervisors prepare weekly profit and
loss statements for each of the restaurants. The Company believes that the
PROFIT System helps simplify and accelerate many of these reporting functions.
Hours of Operation. The Company's restaurants are open seven days a week,
typically from 11:00 a.m. to 12:00 midnight Sunday through Thursday, and from
11:00 a.m. to 1:30 a.m. on Friday and Saturday.
Development and Franchise Agreements
Franchise and Development Agreements. The Company has entered into
development agreements with PJI for the right to construct one or more Papa
John's restaurants pursuant to a development schedule within specified
geographic areas in nine states and Puerto Rico.
Generally, a franchise agreement is executed when the Company secures a
restaurant location. Each per restaurant development fee is typically credited
against PJI's franchise fee, which is payable to PJI upon signing the franchise
agreement for a specific location. The franchise fees payable with respect to
the Company's restaurants range between $10,000 and $18,500, depending upon the
date of execution of the development agreement. With respect to the Company's
recent executed development agreements (California, Oregon, Puerto Rico and
Utah), the Company expects to pay PJI's standard franchise fee (currently
$20,000) at the time the franchise agreement is entered into.
Under each of the Company's franchise agreements, the Company pays PJI a
royalty fee of 4% of sales, PJI's current standard royalty fee. Under such
agreements, PJI may increase the royalty fee to 5% of sales after the agreement
has been in effect for between three to five years. In no event may the royalty
fee be increased to an amount greater than the royalty fee currently in effect
for new PJI franchisees.
PJI's franchise agreements authorize the Company to use its trade names,
trademarks and service marks with respect to specific Papa John's restaurants.
PJI also provides general construction specifications, designs, color schemes,
signs, equipment, preparation methods for food and beverages, marketing
concepts, operations and financial control methods, management
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training, technical assistance and materials. Each franchise agreement prohibits
the Company from transferring a franchise without the prior approval of PJI. PJI
has the contractual right to terminate a franchise agreement for a variety of
reasons, including a franchisee's failure to make payments when due or failure
to adhere to PJI's policies and standards. Many state franchise laws limit the
ability of a franchisor to terminate or refuse to renew a franchise.
The development agreements, and each of the franchise agreements, prohibit
the Company, during the term of the agreements and for a two-year period
following their termination or expiration, from owning or operating any other
pizza delivery or take-out restaurant within ten to fifty miles of the franchise
granted or any other Papa John's franchise. In addition, the Company and its
senior executive officers have agreed through October 1999 not to operate any
restaurant concepts other than Papa John's without PJI's approval. Also, the
Company's directors (other than Messrs. Sherman, Schnatter and Hart) have agreed
not to be actively involved in the management of other restaurant concepts
during such period without PJI's consent.
Franchise Restaurant Development. PJI assists the Company in selecting
sites and developing restaurants. PJI provides the Company with the physical
specifications for typical restaurants, both for free-standing restaurants and
restaurants located in strip shopping centers. The Company procures virtually
all of the design plans, counters and equipment for its restaurants from PJI at
prices the Company believes are favorable. The Company is responsible for
selecting the location for its restaurants but must obtain PJI's approval of
each restaurant design and each location based on accessibility and visibility
of the site and targeted demographic factors, including population, density,
income, age and traffic. The Company is responsible for all costs and expenses
incurred in locating, acquiring and developing restaurant sites.
Franchise Training and Support. Each regional operations director and area
supervisor must satisfactorily complete PJI's two-week training program and must
also devote his or her full business time and efforts to the operation of the
Company's restaurants. Each of the Company's restaurant managers report to an
area supervisor and are also required to complete PJI's two-week training
program.
Franchise Operations. All Company restaurants are required to operate in
compliance with PJI's policies, standards and specifications, including matters
such as menu items, ingredients, materials, supplies, services, fixtures,
furnishings, decor and signs. The Company has full discretion to determine the
prices to be charged to its customers.
Reporting. PJI collects daily, weekly and monthly sales and other operating
information from the Company. The Company has agreements with PJI permitting PJI
to electronically debit the Company's bank accounts for the payment of
royalties, Marketing Fund contributions and purchases from PJI. This system
significantly reduces the resources needed to process payables.
Competition
The restaurant industry is intensely competitive with respect to price,
service, location and food quality, and there are many well-established
competitors with substantially greater financial and other resources than the
Company. Such competitors include a large number of national and regional
restaurant chains, as well as local pizza restaurant operators. Some of the
Company's
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competitors have been in existence for a substantially longer period than the
Company and may be better established in the markets where the Company's
restaurants are, or may be, located. Within the pizza segment of the restaurant
industry, the Company believes that its primary competitors are the national
pizza chains, including Pizza Hut, Domino's and Little Caesar's. A change in the
pricing, marketing or promotional strategies or product mix of one or more of
these competitors could have a material adverse impact on the Company's sales
and earnings. In general, there is also active competition for management
personnel and real estate sites suitable for Papa John's restaurants.
The restaurant business is often affected by changes in consumer tastes,
national, regional or local economic conditions, demographic trends, traffic
patterns and the type, number and location of competing restaurants. In
addition, factors such as inflation, increased food, labor and benefits costs
and the lack of experienced management and hourly employees may adversely affect
the restaurant industry in general and the Company's restaurants in particular.
Government Regulation
The Company is subject to various Federal, state and local laws affecting
its business. Each Papa John's restaurant is subject to licensing and regulation
by a number of governmental authorities, which include health, safety,
sanitation, building and fire agencies in the state or municipality in which the
restaurant is located. Difficulties in obtaining or failures to obtain required
licenses or approvals can delay or prevent the opening of a new restaurant in a
particular area. The Company is also subject to Federal and state environmental
regulations, but these have not had a material effect on the Company's
operations.
The Company's relationship with PJI is governed by the laws of several
states which regulate substantive aspects of the franchisor-franchisee
relationship. Substantive state laws that regulate the franchisor-franchisee
relationship presently exist or are being considered in a substantial number of
states and bills have been introduced in Congress (one of which is now pending)
which would provide for Federal regulation of substantive aspects of the
franchisor-franchisee relationship. These current and proposed franchise
relationship laws limit, among other things, the duration and scope of non-
competition provisions, the ability of a franchisor to terminate or refuse to
renew a franchise and the ability of a franchisor to designate sources of
supply.
The Company's restaurant operations are also subject to Federal and state
laws governing such matters as wages, working conditions, citizenship
requirements and overtime. Some states have set minimum wage requirements higher
than the Federal level, and the Federal government increased the Federal minimum
wage in September 1997. Significant numbers of hourly personnel at the Company's
restaurants are paid at rates related to the Federal minimum wage and,
accordingly, increases in the minimum wage increase labor costs at the Company's
restaurants. Other governmental initiatives such as mandated health insurance,
if implemented, could adversely affect the Company as well as the restaurant
industry in general. The Company is also subject to the Americans With
Disabilities Act of 1990, which, among other things, may require certain minor
renovations to its restaurants to meet federally-mandated requirements. The cost
of these renovations is not expected to be material to the Company.
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The Company has been granted by PJI the rights to enter into development
agreements for Papa John's restaurants in Puerto Rico. The Company's ability to
establish international operations is subject to various risks, including
changing political and economic conditions, currency fluctuations, trade
barriers, adverse tax consequences, and government regulations relating to,
among other things, the preparation and sale of food, building and zoning
requirements, wages, working conditions, and the Company's relationship with its
employees. There can be no assurance that the Company will be successful in
establishing its international operations or that such risks will not have a
material adverse effect on the Company in the future.
Trademarks
The Company's rights to use PJI's trademarks and service marks are
significant to the Company's business. PJI is the owner of the Federal
registration of the trademark "Papa John's." PJI has also registered "Pizza Papa
John's" and design as a trademark and a service mark. PJI owns Federal
registrations for the marks "Pizza Papa John's Delivering the Perfect Pizza!"
and design, "Call Your Papa," "Perfect Pizza Perfect Price," "Delivering the
Perfect Pizza!", "We Deliver Perfection," "The Official Pizza of Summer," and
"Pizza Papa John's Print Network." PJI has applied for the registration of
"Pizza Papa John's Better Ingredients, Better Pizza" and design, "Better
Ingredients, Better Pizza" and design, and miscellaneous design (Papa John's
logo). PJI is aware of the use by other persons in certain geographic areas of
names and marks which are the same as or similar to the Company's marks. It is
PJI's policy to pursue registration of its marks whenever possible and to
vigorously oppose any infringement of its marks.
Employees
At February 1, 1999, the Company had approximately 4,000 employees of which
approximately 3,400 were restaurant employees, approximately 540 were restaurant
management and supervisory personnel and approximately 60 were corporate
personnel. Most restaurant employees are part-time and are paid on an hourly
basis. None of the Company's employees are currently represented by a labor
union, and the Company is not aware of any union organizing activity among its
employees. The Company believes that its relationship with its employees is
good.
Cautionary Statements
Information provided in this Form 10-K under the captions "Business -
Strategy," "- Expansion and Site Selection," "- Development and Franchise
Agreements" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains, and from time to time the Company may
disseminate materials and make statements which may contain "forward-looking"
information, as that term is defined by the Private Securities Litigation Reform
Act of 1995 (the "Act"). These cautionary statements are being made pursuant to
the provisions of the Act and with the intention of obtaining the benefits of
the "safe harbor" provisions of the Act. The Company cautions investors that any
forward-looking statements made by the Company are not guarantees of future
performance and that actual results may differ materially from those in the
forward-looking statements as a result of various factors, including but not
limited to: (i) the ability to upgrade the Company's infrastructure to support
its operations and development plans, (ii) the ability of the Company, PJI and
PJI's franchisees to expand
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through the opening of new restaurants which may be affected by the selection
and availability of suitable restaurant locations, negotiation of suitable
leases or financing terms, constraints on permitting and construction of
restaurants, and the hiring, training and retention of management and other
personnel, (iii) the Company's ability to acquire existing PJI's franchisees may
be hindered by competition from PJI, which has a right to approve and a right of
first refusal with respect to the sale of all Papa John's restaurants, (iv) the
overall success of PJI, (v) the restaurant industry is intensely competitive
with respect to price, service, location and food quality, and there are many
well established competitors with substantially greater financial and other
resources than the Company, PJI and PJI's franchisees and some of these
competitors have been in existence for a substantially longer period than the
Company, PJI and PJI's franchisees and may be better established in the markets
where restaurants operated by the Company, PJI or PJI's franchisees are, or may
be, located (vi) a change in the pricing or other marketing or impact on sales
and earnings at restaurants operated by the Company, PJI and PJI's franchisees,
(vii) increases in operating costs such as inflation, increased food costs,
increased labor and employee benefit costs and the availability of qualified
management and hourly employees, (viii) the availability of capital to the
Company, PJI and PJI's franchisees and (ix) changes in governmental regulations,
including further increases in the minimum wage.
Item 2. Properties
At December 27, 1998, the Company operated 119 Papa John's restaurants.
Number of
Restaurants
Alabama 23
California 4
Louisiana 12
Ohio 9
Oregon 4
Puerto Rico 2
Texas 8
Utah 14
Virginia 42
Washington 1
Total 119
All but eight of the Company's restaurants are located in leased space. The
initial terms of most of the Company's leases are three to five years and
provide for one or more options to renew for at least one additional term. The
Company's leases generally specify a fixed annual rent with fixed increases, or
increases based on changes in the Consumer Price Index, at various intervals
during the lease term. Generally, the leases are net leases which require the
Company to pay all or a portion of the cost of insurance, maintenance and
utilities.
The Company leases approximately 7,000 square feet of corporate office
space collectively in Alabama, Virginia, Kentucky and Louisiana. In December
1998, the Company completed the construction of an office building in Alabama,
which it owns.
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Item 3. Legal Proceedings
The Company is involved in lawsuits and claims arising in the normal course
of business. In the opinion of management of the Company, although the outcomes
of these lawsuits and claims are uncertain, in the aggregate they will not have
a material adverse effect on the Company's business, financial condition or
results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the current executive officers of the Company, together
with their ages, their positions with the Company and the year in which they
first became an officer of the Company:
<TABLE>
<CAPTION>
First Elected
Name Age Position Executive Officer
- ---- --- -------- -----------------
<S> <C> <C> <C>
Richard F. Sherman 55 Chairman of the Board 1991
Douglas S. Stephens 35 President, Chief Executive Officer 1991
D. Ross Davison 37 Vice President - Chief Financial 1996
Officer and Treasurer
James S. Riekel 39 Vice President - Regional Operations 1993
Robert W. Curtis, Jr. 34 Vice President - Regional Operations 1998
John D. Rose 45 Vice President - Real Estate & Development 1998
</TABLE>
Richard F. Sherman has served as a director and Chairman of the Board of
the Company or certain predecessors since 1991. Mr. Sherman is a private
investor who has been a franchisee and a consultant to PJI since 1991. From 1993
to present, Mr. Sherman has been a director of PJI. From 1987 to 1991, Mr.
Sherman was Chairman of the Board and President of Rally's Hamburgers, Inc. From
1984 to 1987, Mr. Sherman was President and a director of Church's Chicken, Inc.
From 1971 to 1984, Mr. Sherman was Group Executive Vice President and director
of Hardee's Food Systems, Inc. and its parent, Imasco USA, Inc. Mr. Sherman
serves on the board of directors of Taco Cabana, Inc., and Reed's Jewelers, Inc.
Douglas S. Stephens has served as a director, President and Chief Executive
Officer of the Company or certain predecessors since 1991. From 1989 to 1991,
Mr. Stephens was the Vice President of Information Systems for the Kentucky
Lottery Corporation. From 1986 to 1989, Mr. Stephens was a systems consultant
for Andersen Consulting, a division of Arthur Andersen, LLP, an international
professional services firm.
D. Ross Davison has served as Vice President - Chief Financial Officer and
Treasurer of the Company since 1996. From 1985 to 1996, Mr. Davison was with
Arthur Andersen, LLP, an international professional services firm, and his most
recent position was Senior Manager. From 1983 to 1985, Mr. Davison was with
Cotton and Allen, P.S.C., a certified public accounting firm. Mr. Davison is a
licensed Certified Public Accountant.
James S. Riekel has served as Vice President - Regional Operations of the
Company or certain predecessors since 1992. From 1983 to 1992, Mr. Riekel was
with Domino's Pizza, Inc., where his most recent position was Regional
Operations Director.
Robert W. Curtis, Jr. was elected Vice President - Regional Operations of
the Company in 1998. Mr. Curtis served as Senior Operations Director of Alabama
from 1993 to 1998. Mr. Curtis has worked for Domino's Pizza (8 years) and Papa
John's International, Inc. (2 years).
John D. Rose has served as Vice President - Real Estate and Development
since August 1998. From 1996 to 1998, Mr. Rose was Vice President of Real Estate
for Famous Dave's of America. From 1992 to 1996 Mr. Rose held various positions
in the real estate department of PJI.
11
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 7a. Qualitative and Quantitative Disclosures About Market Risk
N/A
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Items 10 - 13. Directors and Executive Officers of the Registrant; Executive
Compensation; Security Ownership of Certain Beneficial Owners
and Management; and Certain Relationships and Related
Transactions
The information required by these items, other than the information set
forth in this Report under Part I, "Executive Officers of Registrant," is
omitted because the Company is filing a definitive proxy statement pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this Report which includes the required information. Such information is
incorporated herein by reference.
12
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's common stock has traded on the Nasdaq National Market System
under the trading symbol "PJAM" since October 25, 1996. At February 4, 1999,
there were approximately 70 record holders of the Company's common stock. The
following table sets forth the high and low sales prices of the Company's common
stock for the quarters indicated, as reported by the Nasdaq National Market
System:
<TABLE>
<CAPTION>
1998
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
First Quarter $18.63 $14.50
Second Quarter $21.50 $17.50
Third Quarter $21.38 $13.25
Fourth Quarter $20.50 $13.25
1997
Quarter Ended High Low
------------- ---- ---
First Quarter $19.25 $14.00
Second Quarter $18.88 $12.13
Third Quarter $18.75 $15.13
Fourth Quarter $17.88 $13.25
</TABLE>
Since its initial public offering of common stock in October 1996, the Company
has not paid dividends on its common stock, and has no plans to do so in the
foreseeable future.
13
<PAGE>
Item 6. Selected Financial Data (In thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED (1)
-------------------------------------------------------------
(2)(4) (2)(3)(4) (2)(3)(4) (4)
Dec. 25, Dec. 31, Dec. 29, Dec. 28, Dec. 27,
1994 1995 1996 1997 1998
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Restaurant sales $6,415 $16,744 $24,550 $48,128 $68,586
Cost and expenses:
Cost of sales 2,098 5,630 8,064 15,251 22,153
Salaries and benefits 1,677 4,158 6,113 12,508 18,272
Other operating expenses 1,481 3,820 5,833 11,535 15,971
General and administrative expenses 433 887 1,402 2,558 3,466
Depreciation and amortization 172 393 628 1,302 2,078
-------------------------------------------------------------
Total costs and expenses 5,861 14,888 22,040 43,154 61,940
-------------------------------------------------------------
Operating income 554 1,856 2,510 4,974 6,646
Other income (expense), net (22) (78) 11 864 916
-------------------------------------------------------------
Income before income taxes 532 1,778 2,521 5,838 7,562
Provision for income taxes 194 684 941 2,040 2,495
-------------------------------------------------------------
Net income $ 338 $1,094 $ 1,580 $ 3,798 $ 5,067
=============================================================
Net income per share - Basic $ 0.52 $ 0.61 $ 0.71 $ 0.88
----------------------------------------------
Net income per share - Diluted $ 0.52 $ 0.61 $ 0.69 $ 0.86
==============================================
Weighted average shares outstanding - Basic 2,120 2,583 5,369 5,777
----------------------------------------------
Weighted average shares outstanding - Diluted 2,120 2,610 5,483 5,919
===============================================
Balance sheet data (end of period):
Total assets $1,655 $3,628 $23,614 $40,283 $48,813
Total debt, including current maturities 427 1,071 70 - -
Stockholders' equity 995 1,885 21,518 36,807 41,746
</TABLE>
(1) The Company operates on a 52-53 week year ending on the last Sunday in
December each year. Fiscal 1995 was a 53 week year.
(2) Includes the Alabama Group for the entire period presented. Fiscal 1996
also includes the Virginia Group from the date of acquisition (October 30,
1996), which was simultaneous with the closing of the IPO.
(3) Fiscal 1995 and 1996 represent the results of operations of the Company
restated to give retroactive effect to the merger with OPD on June 5, 1997,
which was accounted for as a pooling of interests, as if the merger had
occurred at the beginning of fiscal 1995.
(4) Net income reflects a pro forma provision for income taxes assuming the
Company's predecessors and OPD were C corporations rather than S
corporations.
14
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Introduction
The Company is the largest franchisee of Papa John's pizza delivery and
carry-out restaurants. At December 27, 1998, the Company owned and operated 119
Papa John's restaurants in nine states and Puerto Rico.
The Company succeeded to the businesses of five PJI franchisees
("Predecessor Companies") on October 30, 1996 concurrent with the closing of the
Company's IPO.
On June 5, 1997, a subsidiary of the Company merged with OPD acquiring
eight Papa John's restaurants in the Akron, Ohio area. This transaction was
accounted for as a pooling of interests and accordingly, the financial
statements for 1996 have been restated.
The Company's restaurants operate under separate franchise agreements,
which generally have terms between five and ten years (with renewal options
between five and ten years) and require payment of monthly royalties equal to 4%
of restaurant sales. The Company also has entered into development agreements
with PJI to open a certain number of restaurants over a defined period of time
within specific geographic areas. The Company's development agreements generally
require it to pay a non-refundable fee per restaurant covered by the respective
agreements and which fee is typically credited against the initial franchise fee
that the Company is required to pay for each new restaurant opened. The Company
amortizes development and franchise fees over a 20-year period, beginning with
the opening of a restaurant.
The Company's growth strategy focuses on further developing the Papa John's
concept through: (i) building out its existing markets; (ii) acquiring and
developing new territories; and (iii) strategically acquiring existing Papa
John's franchisee groups and territories, if available. The Company's market-by-
market expansion strategy has contributed to increases in comparable restaurant
sales, although there can be no assurance that comparable restaurant sales will
continue to be positive.
The average cash investment including franchise fees for the 46 restaurants
opened or acquired during 1998 was approximately $255,000 (25 openings, and 21
acquired), exclusive of land and pre-opening costs. The Company expects the
average cash investment for restaurants opened in 1999 to be approximately
$260,000. The expected increase in the unit cost is primarily due to a higher
proportion of free-standing units and higher construction costs in California,
Oregon and Puerto Rico.
The Company believes its expansion strategy has contributed to obtaining
higher average restaurant sales than the Papa John's franchise system. For
restaurants open throughout 1998, average sales in 1998 were $774,000, compared
to average sales in 1997 of $773,000, with the restaurant base increasing 59%
(from 46 restaurants to 73 restaurants).
The Predecessor Companies operated as S corporations until October 29,
1996. As such, the earnings of the Predecessor Companies were taxed for federal
and state income tax purposes directly to the Predecessor Companies'
stockholders. Beginning October 30, 1996, the Company became subject to
corporate level income taxes (June 5, 1997 for OPD).
15
<PAGE>
1998 Compared to 1997
Restaurant Sales. Restaurant sales increased 43% to $68.6 million in 1998,
from $48.1 million in 1997. This increase was primarily due to a 47% increase in
the number of equivalent restaurants open during 1998 as compared to 1997.
"Equivalent restaurants" represents the number of restaurants open at the
beginning of a given period, adjusted for restaurants opened or acquired during
the period on a weighted average basis. Also, comparable sales increased 4.5% in
1998 over 1997, for restaurants open throughout both years.
Costs and Expenses. Cost of sales, which consists of food, beverage, and
paper costs, increased $6.9 million, and increased as a percentage of restaurant
sales to 32.3% in 1998 from 31.7% in 1997. This percentage increase is primarily
attributable to significantly higher average cheese costs in the second half of
1998, partially offset by a slight shallowing of discounts.
Salaries and benefits, which consist of all store level employee wages,
taxes and benefits, increased $5.8 million, and increased as a percentage of
restaurant sales to 26.6% in 1998 from 26.0% in 1997. The percentage increase
was primarily due to the increase in the minimum wage in September 1997, and a
higher proportion of new restaurant openings in 1998.
Other operating expenses include other restaurant level operating costs,
the material components of which are automobile mileage reimbursement for
delivery drivers, rent, royalties, utility expenses, and advertising expenses.
Other operating expenses increased $4.4 million, and decreased as a percentage
of restaurant sales to 23.3% in 1998 compared to 24.0% in 1997. This percentage
decrease is primarily due to increased leverage of advertising expenses, mileage
reimbursement and insurance expense, partially offset by higher occupancy and
other operating expenses for newer restaurants.
General and administrative expenses increased $.9 million and decreased as
a percentage of restaurant sales to 5.1% in 1998 from 5.3% in 1997.
Depreciation and amortization increased by $.8 million, and increased
slightly as a percentage of restaurant sales to 3.0% in 1998 from 2.7% in 1997.
The dollar and percentage increases were primarily due to goodwill amortization
of acquired restaurants in late 1997 and 1998, and the higher proportion of new
restaurant openings.
Other Income. Other income, consisting primarily of investment income, was
consistent at $.9 million. Investment balances are considered available to fund
growth and acquisitions.
16
<PAGE>
1997 Compared to 1996
Restaurant Sales. Restaurant sales increased 96% to $48.1 million in 1997,
from $24.6 million in 1996. This increase was primarily due to a 109% increase
in the number of equivalent restaurants open during 1997 as compared to 1996
(acquisition of 25 Virginia restaurants on October 30, 1996). Also, comparable
sales increased 6.9% in 1997 over 1996, for restaurants open throughout both
years.
Costs and Expenses. Cost of sales, which consists of food, beverage, and
paper costs, increased $7.2 million, but decreased as a percentage of restaurant
sales to 31.7% in 1997 from 32.8% in 1996. This percentage decrease is primarily
attributable to lower average cheese costs in 1997 as compared to 1996.
Salaries and benefits, which consist of all store level employee wages,
taxes and benefits, increased $6.4 million, and increased as a percentage of
restaurant sales to 26.0% in 1997 from 24.9% in 1996. The increase in salaries
and benefits as a percentage of restaurant sales was primarily due to increases
in the minimum wage in October 1996 and September 1997, partially offset by
improved labor utilization.
Other operating expenses include other restaurant level operating costs,
the material components of which are automobile mileage reimbursement for
delivery drivers, rent, royalties, utility expenses, and advertising expenses.
Other operating expenses increased $5.7 million, and increased as a percentage
of restaurant sales to 24.0% in 1997 compared to 23.8% in 1996. This percentage
increase is primarily due to the acquisition of the Virginia restaurants, which
historically have had higher other operating expenses as a percentage of
restaurant sales, partially offset by increased leverage of expenses as a result
of comparable restaurant sale increases and increased purchasing power.
General and administrative expenses increased $1.2 million and decreased as
a percentage of restaurant sales to 5.3% in 1997 from 5.7% in 1996. The decrease
was primarily due to the leveraging of general and administrative expenses as a
result of increased sales, partially offset by additional corporate
infrastructure necessary to support planned growth.
Depreciation and amortization increased by $.7 million, and increased
slightly as a percentage of restaurant sales to 2.7% in 1997 from 2.6% in 1996.
The dollar increase was primarily due to the addition of new and acquired
restaurants.
Other Income. Other income, consisting primarily of investment income,
increased $.9 million. The increase in investment income was a result of
earnings on funds received from the IPO in October 1996 and the secondary stock
offering in July 1997.
17
<PAGE>
Liquidity and Capital Resources
The Company requires capital primarily for the development and acquisition
of new restaurants. Total capital expenditures (which include franchise and
development fees) for 1998 were approximately $10.0 million, primarily for the
opening of restaurants, commissary assets, and an office building. In addition,
the Company acquired 21 restaurants, construction in process, development
territory (31 additional restaurants) and other assets for cash from other Papa
John's franchisees for $9.0 million.
Cash provided by operating activities was $9.5 million, $6.5 million, and
$3.7 million in 1998, 1997, and 1996, respectively. The increases are primarily
the result of higher net income and depreciation and amortization.
The Company has financed its operations principally from cash provided by
operating activities and proceeds from stock offerings. The Company received
$19.2 million in net cash proceeds from its IPO in October 1996. As a result of
the IPO, the Company used approximately $2.0 million of the IPO proceeds to fund
final S corporation distributions to stockholders, $1.6 million to retire
stockholder indebtedness, and $2.0 million to retire bank indebtedness. The
remaining net proceeds were used to fund capital expenditures in 1996 or were
held in various investments. The Company also received net proceeds of $12.2
million from a secondary stock offering in July, 1997, which were used to fund
capital expenditures or were held in various investments.
Capital expenditures are expected to be approximately $9 million for 1999,
all of which is expected to be for restaurant development and existing
restaurant improvements. The Company also may acquire the operations of other
Papa John's franchisees if such operations become available on terms
satisfactory to the Company. Capital resources at December 27, 1998 include
$18.4 million of cash and investments. The Company plans to fund its capital
expenditures through 1999 from available cash, investments, and cash generated
from operations. The Company has not sought and does not have any commitments
for any credit facilities.
Impact of Inflation
The Company does not believe inflation has materially affected earnings
during the past three years. Substantial increases in costs, particularly labor,
employee benefits or food costs, could have a significant impact on the Company
in the future.
Impact of Year 2000
Some of the Company's older purchased software programs were written using
two digits rather than four to define the applicable year. As a result, time-
sensitive software or hardware recognizes a date using "00" as the year 1900
rather than the year 2000. This could cause a system failure or miscalculations
resulting in disruptions of important administrative processes, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
18
<PAGE>
The Company has completed an assessment of its computer systems and will have to
modify or replace certain software and hardware so that they will function
properly in the year 2000 and thereafter. Based on the Company's assessment or
representations from software suppliers, or both, the Company believes the total
Year 2000 project cost will be less than $25,000 and costs incurred to date have
been less than $5,000. Much of the cost related to Year 2000 coincides with
existing management plans to replace certain systems (principally the financial
accounting system) in order to accommodate the Company's planned growth. The
Company expects the new accounting system to be implemented by June 1999. The
timing of implementation was not materially affected by Year 2000 concerns.
The Company believes that with the planned modifications to existing software
and/or conversions to new software and hardware as described above, the Year
2000 issue will not pose significant operational problems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 issue could have a material impact on certain administrative
processes, but would not be expected to have a material impact on restaurant
operating processes.
The Company's payroll system interfaces directly with a significant third party
vendor. The Company has completed the testing and implementation of the Year
2000 compliant software utilized to interface directly with this third party
vendor. The Company is in the process of querying its significant vendors with
respect to Year 2000 issues. Based on the responses received from vendors, the
Company is not aware of any vendors with a Year 2000 issue that would materially
impact results of operations, liquidity, or capital resources. However, the
Company has no means of ensuring that vendors will be Year 2000 ready. The
inability of vendors to complete their Year 2000 resolution process in a timely
fashion could materially impact the Company, although the actual impact of non-
compliance by vendors is not determinable.
The Company has no contingency plans in place in the event it does not complete
all phases of its Year 2000 program. The Company plans to evaluate the status of
completion in June 1999 to determine whether such contingency plans are
necessary, although at this time the Company knows of no reason its Year 2000
program will not be completed in a timely manner.
Item 7a. Qualitative and Quantitative Disclosures About Market Risk
N/A
19
<PAGE>
Item 8. Financial Statements and Supplementary Data
The following table sets forth the percentage relationship to restaurant sales
for certain income statement data for the Company:
<TABLE>
<CAPTION>
For the Years Ended (1)
----------------------------------------
Dec. 29, Dec. 28, Dec. 27
1996 (2)(3)(4) 1997(4) 1998
----------------------------------------
<S> <C> <C> <C>
Restaurant sales 100.0% 100.0% 100.0%
Cost and expenses:
Cost of sales 32.8 31.7 32.3
Salaries and benefits 24.9 26.0 26.6
Other operating expenses 23.8 24.0 23.3
General and administrative expenses 5.7 5.3 5.1
Depreciation and amortization 2.6 2.7 3.0
----------------------------------------
Total costs and expenses 89.8 89.7 90.3
----------------------------------------
Operating income 10.2 10.3 9.7
Other income - 1.8 1.3
----------------------------------------
Income before income taxes 10.2 12.1 11.0
Provision for income taxes 3.8 4.2 3.6
----------------------------------------
Net income 6.4% 7.9% 7.4%
========================================
Restaurant data - the Company (5): 1996 1997 1998
----------------------------------------
Percentage change in comparable restaurant sales 4.7% 6.9% 4.5%
Average sales for restaurants open for
full year (in thousands) $ 721 $ 773 $ 774
========================================
Number of restaurants:
Beginning of year 39 46 73
Opened 7 11 25
Acquired - 16 21
----------------------------------------
End of year 46 73 119
========================================
</TABLE>
(1) The Company operates on a 52-53 week year ending on the last Sunday in
December each year. All years presented are 52 week years.
(2) Fiscal 1996 includes the Virginia Group from the date of acquisition
(October 30, 1996), which was simultaneous with the closing of the IPO.
(3) Fiscal 1996 represents the results of operations of the Company restated to
give retroactive effect to the merger with OPD on June 5, 1997, which was
accounted for as a pooling of interests, as if the merger had occurred at
the beginning of fiscal 1996.
(4) Net income reflects a pro forma provision for income taxes assuming the
Company's predecessors and OPD were C corporations rather than S
corporations for each period.
(5) Includes all restaurants included in the IPO as if they were operated by
the Company for 1996.
20
<PAGE>
Index to Financial Statements and Supplementary Data
Page
----
Audited Consolidated Financial Statements
Consolidated Balance Sheets as of December 28, 1997 and December 27, 1998.. 22
Consolidated Statements of Income for the Years Ended December 29, 1996,
December 28, 1997 and December 27, 1998............................... 23
Consolidated Statements of Stockholders' Equity for the Years Ended
December 29, 1996, December 28, 1997 and December 27, 1998............ 24
Consolidated Statements of Cash Flows for the Years Ended
December 29, 1996, December 28, 1997 and December 27, 1998................. 25
Notes to Consolidated Financial Statements................................. 26
Report of Management....................................................... 41
Report of Independent Auditors............................................. 42
21
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Dec. 28, Dec. 27,
(In thousands, except per share data) 1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,674 $ 5,026
Inventories 311 549
Prepaid expenses and other 360 264
Investments 9,830 8,305
Deferred income taxes 111 151
------- -------
Total current assets 17,286 14,295
Investments 11,402 5,041
Net property and equipment 9,419 21,146
Deferred franchise and development costs, net of accumulated
amortization of $149 in 1997 and $248 in 1998 1,308 3,546
Goodwill, net of accumulated amortization of $10 in 1997 and
$132 in 1998 731 4,576
Other assets 137 209
------- -------
Total assets $40,283 $48,813
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 525 $ 508
Accounts payable - PJI - 1,345
Accrued expenses 2,420 4,263
------- -------
Total current liabilities 2,945 6,116
Deferred income taxes 531 951
Stockholders' equity:
Preferred stock ($1.00 par value per share; authorized
1,000 shares, no shares issued and outstanding) - -
Common stock ($.01 par value per share; authorized
20,000 shares; issued and outstanding shares of 5,782
in 1997 and 5,772 in 1998) 58 58
Additional paid-in-capital 32,197 32,565
Retained earnings 4,552 9,123
------- -------
Total stockholders' equity 36,807 41,746
------- -------
Total liabilities and stockholders' equity $40,283 $48,813
======= =======
</TABLE>
(See accompanying notes)
22
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended
------------------------------
Dec. 29, Dec. 28, Dec. 27,
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
(In thousands, except per share amounts)
Restaurant sales $24,550 $48,128 $68,586
Restaurant operating expenses:
Cost of sales 8,064 15,251 22,153
Salaries and benefits 6,113 12,508 18,272
Other operating expenses 5,833 11,535 15,971
Depreciation and amortization 628 1,302 2,078
------- ------- -------
20,638 40,596 58,474
------- ------- -------
Restaurant operating income 3,912 7,532 10,112
General and administrative expenses 1,402 2,558 3,466
------- ------- -------
Operating income 2,510 4,974 6,646
Other income 11 864 916
------- ------- -------
Income before income taxes 2,521 5,838 7,562
Income tax expense 250 1,943 2,495
------- ------- -------
Net income $ 2,271 $ 3,895 $ 5,067
======= ======= =======
Net income per share - Basic $ 0.88
=======
Net income per share - Diluted $ 0.86
=======
Weighted average shares outstanding - Basic 5,777
=======
Weighted average shares outstanding - Diluted 5,919
=======
Pro forma income data (unaudited) (Note 4):
Historical income before income tax expense $ 2,521 $ 5,838
Pro forma income tax expense 941 2,040
------- -------
Pro forma net income $ 1,580 $ 3,798
======= =======
Pro forma net income per share:
Basic $ 0.61 $ 0.71
======= =======
Diluted $ 0.61 $ 0.69
======= =======
Weighted average shares outstanding:
Basic 2,583 5,369
======= =======
Diluted 2,610 5,483
======= =======
</TABLE>
(See accompanying notes)
23
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
-------------- Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands)
Balance, December 31, 1995 1 $ 3 $ 447 $ 1,435 $ 1,885
Net income - - - 2,271 2,271
S corporation distributions - - - (4,099) (4,099)
Stock splits and changes in par and authorized shares 1,769 15 (15) - -
Change in par value applicable merger with OPD 277 2 (2) - -
Issuance of common stock (net of issuance costs) 1,755 18 19,224 - 19,242
Acquisition of Virginia group 1,230 12 291 1,832 2,135
Issuance of warrant to PJI - - 84 - 84
------------------------------------------------
Balance, December 29, 1996 5,032 50 20,029 1,439 21,518
Net income - - - 3,895 3,895
S corporation distributions - OPD - - - (782) (782)
Issuance of common stock (net of issuance costs) 750 8 12,168 - 12,176
------------------------------------------------
Balance, December 28, 1997 5,782 58 32,197 4,552 36,807
Net income - - - 5,067 5,067
Proceeds from exercise of stock options 45 - 675 - 675
Repurchases of common stock (55) - (307) (496) (803)
------------------------------------------------
Balance, December 27, 1998 5,772 $58 $32,565 $9,123 $41,746
================================================
</TABLE>
(See accompanying notes)
24
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
For the Years Ended
------------------------------
Dec. 29, Dec. 28, Dec. 27,
1996 1997 1998
------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 2,271 $ 3,895 $ 5,067
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 628 1,302 2,078
Deferred income taxes (33) 453 380
Changes in operating assets and liabilities:
Inventories (69) (82) (140)
Prepaid expenses and other 130 8 31
Accounts payable (143) 336 (127)
Accrued expenses 879 654 402
Accounts payable - PJI - - 1,345
Other - - 362
Other assets (6) (35) 53
------------------------------
Net cash provided by operating activities 3,657 6,531 9,451
Investing Activities:
Purchases of property, equipment franchise and
development fees (1,385) (4,462) (10,005)
Purchases of investments (12,058) (50,550) (36,154)
Proceeds from maturity of investments - 41,376 44,040
Purchase of Virginia Group 985 - -
Purchase of PJ Louisiana and PJ Utah - (1,621) (9,049)
Other 81 - -
------------------------------
Net cash used in investing activities (12,377) (15,257) (11,168)
Financing Activities:
Proceeds from bank borrowings 1,065 - -
Proceeds from issuance of common stock 19,242 12,176 -
Proceeds from exercise of stock options - - 675
Repurchases of common stock - - (803)
Payments on bank borrowings (2,423) (70) -
Issuance of (payments on) stockholder notes (1,496) - 197
Distributions paid - S Corporation (4,099) (782) -
------------------------------
Net cash provided by financing activities 12,289 11,324 69
------------------------------
Net increase (decrease) in cash and cash equivalents 3,569 2,598 (1,648)
Cash and cash equivalents at beginning of year 507 4,076 6,674
------------------------------
Cash and cash equivalents at end of year $ 4,076 $ 6,674 $ 5,026
==============================
</TABLE>
(See accompanying notes)
25
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation, Description of Business, and Reorganization
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
PJ America, Inc. and its wholly-owned subsidiaries (the Company). All
significant inter-company transactions between the consolidated companies have
been eliminated. Prior to the Company's initial public offering (the "Offering")
and reorganization in October 1996, the Company's financial statements
represented the combined financial position, results of operations and cash
flows of Extra Cheese, Inc. (Extra Cheese), Textra Cheese Corp. (Textra) and
Twice the Cheese, Inc. (Twice), collectively referred to herein as the "Alabama
Group." Those financial statements excluded the combined financial position of
PJVA, Inc. and PJV, Inc., collectively referred to as the "Virginia Group" prior
to their acquisition on October 30, 1996 (See Note 6). These consolidated
financial statements have been restated to give retroactive effect to the merger
with Ohio Pizza Delivery Co. (OPD), on June 5, 1997, in a transaction accounted
for as a pooling of interests as if the merger had occurred at the beginning of
fiscal 1995. (See Note 4).
Extra Cheese, Textra, and Twice operated as S corporations through October
30, 1996, when their S corporation elections were terminated. As a result, they
were not subject to federal or state income tax before October 30, 1996.
OPD operated as an S corporation from January 1, 1995 through June 5, 1997,
when its S corporation election was terminated. As a result, OPD was not subject
to federal or state income taxes before June 5, 1997. However, OPD was subject
to local income taxes.
Pro forma information for the years ended December 29, 1996 and December
28, 1997 have been presented as if the Alabama Group and OPD had been treated as
C corporations rather than S corporations, with assumed effective income tax
rates of 36.5% and 41%, respectively.
Description of Business
The Company operates pizza delivery and carry-out restaurants under the
trademark "Papa John's" in nine states and Puerto Rico. At December 27, 1998,
the Company operated 119 restaurants.
Reorganization
The Company was formed in August 1996, to succeed to the businesses of five
Papa John's International, Inc. (PJI) franchisees. Extra Cheese entered into an
Agreement dated June 10, 1996, as amended on July 10, 1996, and a Plan of Merger
with Twice, Textra, PJVA, Inc. and PJV, Inc., pursuant to which all such
corporations agreed to be merged into PJ Cheese, Inc. (PJ Cheese), a wholly-
owned subsidiary of Extra Cheese, in exchange for shares of common stock of
Extra Cheese. On October 30, 1996, concurrent with the completion of the
Offering (i) all such
26
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
1. Basis of Presentation, Description of Business, and Reorganization
(continued)
corporations merged into PJ Cheese; (ii) Extra Cheese contributed to PJ Cheese
all of the assets of Extra Cheese relating to its restaurants, with PJ Cheese
assuming all of Extra Cheese's liabilities relating thereto; and (iii) Extra
Cheese merged into the Company with the stockholders of Extra Cheese receiving
an aggregate of 3,000,000 shares of common stock of the Company (the
"Reorganization"). Accordingly, the Company is the parent of PJ Cheese, and PJ
Cheese owns all of the Papa John's restaurants which were owned by Extra Cheese,
Textra, Twice, PJVA, Inc. and PJV, Inc. (collectively, the "Predecessor
Companies").
The Reorganization was an exchange of non-monetary assets by stockholders
and has been accounted for at historical cost.
2. Significant Accounting Policies
Fiscal Year
The Company's fiscal year ends on the last Sunday in December of each year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity of
three months or less at date of purchase. These investments are carried at cost,
which approximates fair value.
Inventories
Inventories consist of food products, paper goods and supplies and are
stated at the lower of cost, determined under the first-in, first-out (FIFO)
method, or market. Virtually all of the Company's food products and supplies are
purchased from PJI.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets, which
range from three to ten years for restaurant, commissary, and other equipment,
20 to 25 years for restaurant buildings and improvements, and 40 years for the
Company's office building. Leasehold improvements are amortized over the terms
of the respective leases, including the first renewal period (generally five to
ten years). Normal repair and maintenance costs are expensed as incurred.
27
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Significant Accounting Policies (continued)
Investments
The Company determines the appropriate classification of investment
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. All investment securities held by the Company have been
classified as held-to-maturity. Held-to-maturity investment securities are
stated at amortized cost with any amortization of premiums and accretion of
discounts included in interest income.
Development and Franchise Fees
Development fees paid by the Company to PJI (or for the acquisition of
another franchisee territory) for the right to open a certain number of
restaurants in a geographic area are deferred and amortized to expense on a pro
rata basis as each restaurant is opened. Franchise fees are generally paid when
each restaurant is opened and are deferred and amortized. Deferred development
and franchise fees are amortized over a 20 year period using the straight-line
method beginning with the opening of each restaurant.
Advertising and Related Costs
Advertising and related costs include restaurant activities such as mail
coupons, doorhangers, promotional items, and required contributions to PJI's
production fund (0.50% to 1.0% of restaurant sales, and is currently 1.0%). Such
amounts are expensed as incurred and were approximately $1.5 million, $3.5
million and $4.6 million in 1996, 1997 and 1998, respectively, and are included
in other operating expenses in the consolidated statements of income.
Goodwill
Goodwill represents the excess of cost over fair value of assets acquired
and is being amortized over 20-30 years using the straight-line method. The
Company reviews the carrying value of goodwill if the facts and circumstances
suggest that it may be impaired. If this review indicates that goodwill will not
be recoverable based upon the undiscounted expected future cash flows over the
remaining amortization periods the Company's carrying value of goodwill is
reduced by the excess of the carrying value over the fair value of the entity
acquired.
Stock-Based Compensation
The Company follows the provisions of Accounting Principles Board Opinion
(APB) No. 25 for its stock-based compensation awards (see Note 13).
28
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
2. Significant Accounting Policies (continued)
Income Taxes
On October 29, 1996, the Predecessor Companies of PJ America, Inc.
terminated their status as S corporations and the Company became subject to
federal and state income taxes. Concurrently, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes,"
and accordingly, there was no cumulative effect of adopting SFAS No. 109, and
prior year financial statements were not restated. In accordance with the
provisions of SFAS No. 109, deferred income taxes reflect the temporary tax
consequences on future years of differences between the tax and financial
statement basis of assets and liabilities.
Pre-Opening Costs - Restaurants
Restaurant pre-opening costs, which represent certain expenses incurred
before a restaurant opens, are expensed as incurred.
Deferred Commissary Start-Up Costs
Commissary start-up costs, which represent certain expenses incurred before
a new commissary facility begins operations, are capitalized and amortized on a
straight-line basis over a period of one year from the commissary's opening
date.
In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" (the "SOP") which requires that
all start up costs be expensed. The SOP must be adopted in the first quarter of
1999. The Company's initial application of the SOP will require the write-off of
deferred commissary start-up costs as of the date of adoption, and such write
off would be reported, on a net of tax basis, as a cumulative effect of a change
in accounting principle. Deferred commissary start-up costs as of December 27,
1998 were approximately $275,000.
Net Income Per Share
Net income per share is based on the weighted average number of shares of
common stock outstanding (Basic) and common stock equivalents during the period
(Diluted).
Reclassifications
Certain amounts in the 1996 and 1997 Consolidated Financial Statements have
been reclassified to conform with the 1998 presentation.
29
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
3. Stock Offerings and Repurchases
The Company completed the initial public offering of its common stock on
October 30, 1996, pursuant to which the Company sold 1,755,000 shares of its
common stock, including 135,000 shares exercised to cover underwriter over-
allotments, at an initial public offering price of $12.50 per share. Net
proceeds from the Offering (after deducting the underwriting discount of $1.5
million and expenses of $1.2 million) were $19.2 million. Such proceeds were
partially used to fully retire the outstanding balance owed to banks and
shareholders, pay S Corporation distributions, and for general corporate
purposes.
In July 1997, the Company completed a secondary offering of its common
stock, pursuant to which the Company sold 750,000 shares of its common stock at
$17.75 per share. Net proceeds of the offering (after deducting the underwriting
discount of $.7 million and expenses of $.4 million) were $12.2 million.
In September 1998, the Board of Directors authorized the Company to
purchase up to $5 million of its common stock in both open market purchases as
well as private transactions. As of December 27, 1998, the Company had
repurchased and immediately retired 54,500 shares at various prices totaling $.8
million.
4. Business Combinations
In May 1998, the Company acquired a 22 restaurant Papa John's territory in
Southern Louisiana, which included nine existing restaurants, five restaurants
under development, and development rights for eight additional restaurants. The
purchase price was $4.3 million in cash and a short term note payable to
sellers, plus the assumption of $1.4 million of debt, which was immediately
retired. The above acquisition was with certain Company directors and officers,
including the Chairman of the Board and Chief Executive Officer.
In September 1998, the Company acquired a 30 restaurant Papa John's
territory in Utah, which included 12 existing restaurants and development rights
for 18 additional restaurants. The purchase price was $.8 million in cash plus
the assumption of $2.5 million of debt, which was immediately retired. The above
acquisition was with certain Company directors and officers, including the
Chairman of the Board and Chief Executive Officer.
The above business combinations were accounted for by the purchase method
of accounting, whereby operating results subsequent to the acquisition date have
been included in the Company's consolidated financial statements.
30
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
4. Business Combinations (continued)
The following represents the unaudited pro forma results of operations for
the years ended December 28, 1997 and December 27, 1998 as if the acquisitions
had occurred at the beginning of the Company's respective fiscal years.
<TABLE>
(In thousands, except per share amounts)
1997 1998
----------------------------
<S> <C> <C>
Restaurant sales $55,495 $74,534
============================
Income before income taxes $ 5,113 $ 7,220
============================
Pro forma net income $ 3,435 $ 4,850
============================
Pro forma net income per share: ----------------------------
Basic $ .64 $ .84
============================
Diluted $ .63 $ .82
============================
Weighted average shares outstanding: ----------------------------
Basic 5,369 5,777
============================
Diluted 5,483 5,919
============================
</TABLE>
The pro forma information is not indicative of the results of operations
that actually would have been obtained if the transactions had occurred at the
beginning of the Company's fiscal year. Additionally, the pro forma information
is not intended to be a projection of future results.
On June 5, 1997, PJAM Acquisition Subsidiary, a subsidiary of PJ America,
Inc. merged with OPD, based in Akron, Ohio, in a transaction accounted for as a
pooling of interests. Pursuant to the Agreement and Plan of Merger, dated as of
May 30, 1997, PJAM Acquisition Subsidiary was merged into OPD, with OPD
surviving the merger as a wholly-owned subsidiary of PJ America, Inc. Pursuant
to a fixed formula price, the OPD shareholders received 276,610 shares of the
Company's common stock in exchange for 100% of the common stock of OPD. The
total value of the transaction was approximately $4.6 million, based upon the
conversion value of $16.50 per common share agreed upon on May 20, 1997. The
exchange of shares was accounted for as a pooling of interests.
During 1997, the Company purchased the assets of eight Papa John's
restaurants from other franchisees for total cash consideration of $1.6 million.
31
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
5. Pro Forma Information (Unaudited)
The Company terminated its status as an S corporation on October 29, 1996
(June 5, 1997 for OPD). Pro forma income taxes have been presented to reflect a
provision for federal, state, and local income taxes at an assumed effective
rate of 36.5% (41.0% for OPD).
Pro forma net income per share is based on the weighted averaged number of
shares of common stock (Basic) and common stock equivalents (Diluted)
outstanding during the period. The pro forma net income per share amounts were
calculated assuming that the number of shares of common stock in the Offering
necessary to generate sufficient proceeds to fund the payment of the Company's
undistributed S corporation earnings. A summary of the components of the
weighted average shares of common stock and equivalents outstanding during the
periods indicated is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
----------------------------
<S> <C> <C>
Total number of common shares outstanding
throughout the period 2,091 5,046
Weighted average number of common shares
issued in connection with stock offerings 492 323
----------------------------
Weighted average shares -- Basic 2,583 5,369
Shares issuable upon net exercise of outstanding
stock options and warrants 27 114
----------------------------
Total weighted average shares - Diluted 2,610 5,483
============================
</TABLE>
32
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6. Acquisition of Virginia Group - Pro Forma Information (Unaudited)
Concurrent with the Reorganization, the Company acquired PJVA, Inc. and
PJV, Inc. (See Note 1). The acquisition was accounted for at historical cost,
with the shareholders of PJVA, Inc. and PJV, Inc. receiving an aggregate of
1,230,000 shares of common stock of the Company.
The following represents the unaudited pro forma results of operations for
the year ended December 29, 1996 as if the Reorganization and OPD merger had
occurred at the beginning of the Company's fiscal year. Pro forma net income
reflects an assumed corporate income tax rate of 36.5% for the Company, and
41.0% for OPD.
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
<S> <C>
1996
----
Restaurant sales $37,968
=======
Income before income taxes 3,405
=======
Pro forma net income $ 2,143
=======
Pro forma net income per share:
Basic $ 0.58
=======
Diluted $ 0.57
=======
Weighted average shares outstanding:
Basic 3,722
=======
Diluted 3,749
=======
</TABLE>
The pro forma information is not indicative of the results of operations that
actually would have been obtained if the transactions had occurred at the
beginning of the Company's fiscal year. Additionally, the pro forma information
is not intended to be a projection of future results.
33
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
7. Investments
A summary of the Company's held-to-maturity securities as of December 27,
1998 follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Holding Gains Holding Losses Fair Value
----------------------------------------------------
<S> <C> <C> <C> <C>
Municipal bonds $13,346 $106 $ -- $13,452
==================================================
</TABLE>
Approximately 62% of the Company's held-to-maturity securities will mature
within one year with the remainder maturing between one and two years.
8. Net Property and Equipment
<TABLE>
<CAPTION>
Net property and equipment consists of the following (in thousands):
December 28, December 27,
1997 1998
---------------------------
<S> <C> <C>
Land $ 403 $ 1,276
Building and leasehold improvements 5,068 12,776
Commissary and restaurant equipment 6,931 11,991
Construction in process 400 167
---------------------------
12,802 26,210
Less accumulated depreciation (3,383) (5,064)
Net property and equipment $ 9,419 $21,146
===========================
</TABLE>
9. Accrued Expenses
<TABLE>
<CAPTION>
Accrued expenses consists of the following (in thousands):
December 28, December 27,
1997 1998
---------------------------
<S> <C> <C>
Salaries and wages $ 518 $ 854
Taxes, other than income 468 668
Advertising and royalties 256 400
Shareholder notes payable - 197
Other 1,178 2,144
$ 2,420 $ 4,263
===========================
</TABLE>
34
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Income Taxes
Concurrent with the Reorganization on October 30, 1996, the Predecessor
Companies (See Note 1) terminated their status as S corporations. Accordingly,
the Company is now subject to federal and state income taxes. At the date of
termination of its S corporation status, the Company recorded a net deferred tax
asset and corresponding credit to income tax expense for cumulative temporary
differences between the tax basis and the reported amounts of the Company's
assets and liabilities in the consolidated financial statements. These
differences consisted primarily of deferred expenses and accumulated
depreciation on property and equipment. At the date of termination of S
corporation status, the net differences equaled approximately $109,000 resulting
in a net deferred tax asset and corresponding credit to income tax expense of
approximately $40,000.
Additionally, in connection with the termination of the Predecessor
Companies' S corporation status, distributions were made to their stockholders
of approximately $2.0 million, representing substantially all undistributed S
corporation earnings (as determined for tax reporting purposes) at the time of
termination. Prior to the termination of the Company's S corporation status,
distributions paid to stockholders in 1996 were approximately $1.4 million.
Concurrent with the acquisition of OPD (See Note 4), OPD terminated their
status as an S corporation on June 5, 1997. OPD was previously only subject to
local income taxes. The differences between OPD's tax basis and financial
reporting basis were immaterial.
A summary of income tax expense is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Current
Federal $ 241 $1,372 $1,925
State and local 42 118 190
Deferred (federal and state) 7 453 380
Deferred tax credit (40) - -
----------------------
Income tax expense $ 250 $1,943 $2,495
======================
</TABLE>
Net deferred tax assets (liabilities) as of December 28, 1997 and December
27, 1998 are comprised of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Deferred tax assets - miscellaneous reserves and accruals $ 111 $ 151
Deferred tax liabilities - accelerated depreciation (531) (951)
--------------
Net deferred tax liabilities $(420) $(800)
==============
</TABLE>
35
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
10. Income Taxes (continued)
The reconciliation of income tax computed at the U.S. federal statutory rate to
income tax expense is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Income tax expense at U.S. federal statutory rates $ 857 $1,985 $2,571
Increases (decreases) resulting from:
Income tax expense from operations while S corporations (593) (125) -
State and local income taxes - net 35 129 125
Tax exempt interest income (10) (115) (242)
Deferred tax credit (40) - -
Other 1 69 41
---------------------
Income tax expense $ 250 $1,943 $2,495
=====================
</TABLE>
Income tax payments amounted to $.2 million, $1.5 million and $1.8 million in
1996, 1997 and 1998, respectively.
11. Related Party Transactions
Franchisor
Under the terms of area development agreements between the Company and PJI,
the Company paid development fees ranging from $3,500 to $5,000 per restaurant.
Franchise fees ranging from $1,150 to $15,000 have been paid as each new
restaurant was opened. Royalties in the amount of 4% of restaurant sales are
paid monthly to PJI, and a monthly contribution of 1.0% of sales is paid to the
Marketing fund of PJI. The Company is required to buy certain proprietary food
products from PJI's commissary subsidiary and have elected to buy substantially
all other food products, supplies, marketing materials and equipment from PJI or
its subsidiaries.
The Company's franchise and development agreements with PJI contain certain
requirements regarding the number of units to be opened in the future. Should
the Company fail to comply with the required development schedule or with the
requirements of the agreements for restaurants within areas covered by the
development agreements, PJI has the right to terminate the exclusive nature of
the Company franchises. The franchise agreements also provide PJI with
significant rights regarding the business and operations of the Company.
In connection with the Company's Offering, the Company issued a warrant to
PJ USA (a subsidiary of PJI) to purchase 225,000 shares of common stock at
$11.25 per share. The warrant was issued in consideration for, among other
things, the rights to enter into development agreements and the waiver of rights
of first refusal of certain affiliated franchisees.
36
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
11. Related Party Transactions (continued)
The Company expects to pay all standard development and franchise fees in
connection with operating restaurants in these territories. The warrant is
exercisable in whole or in part at any time until October 30, 2001. The portion
of the warrant discount attributable to the granting of the various development
rights, approximately $84,000, has been capitalized into deferred franchise and
development costs.
Affiliate Market
Certain officers and directors of the Company own equity interests in other
entities that franchise Papa John's restaurants. The Company has obtained a
right of first refusal to acquire franchise and development rights for PJ Iowa,
LLC. However, there is no agreement or understanding between the Company and
these entities or stockholders to acquire such entities or their assets.
Stockholders
Notes payable to stockholders at December 27, 1998, of approximately
$200,000 relate to the acquisition of the Southern Louisiana market, and carry
interest at 5.5%.
In connection with the Company's Offering, certain officers, directors and
former employees received approximately $250,000 for consulting services
provided to the Company with respect to the structuring, organization and
implementation of the Offering.
As noted in Note 4, certain acquisitions have been made between the Company
and certain Company directors and officers.
12. Leases
The Company primarily leases restaurant retail space under operating leases
with terms generally ranging from three to five years and providing for at least
one renewal. Certain leases further provide that the lease payments may be
increased annually based on the Consumer Price Index. Future minimum lease
payments are as follows (in thousands):
<TABLE>
<S> <C>
1999 2,332
2000 2,151
2001 1,794
2002 1,439
2003 890
Thereafter 1,050
------
$9,656
======
</TABLE>
Rent expense was approximately $.4 million, $.9 million and $1.5 million in
1996, 1997, and 1998, respectively.
37
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Stock Options
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). In accordance
with SFAS 123, the Company has elected to follow Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and
related Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under SFAS
123 requires the use of option valuation models that were not developed for use
in valuing employee stock options. Under APB 25, because the exercise price of
the Company's employee stock options equals or exceeds the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
The Company awards stock options under the PJ America, Inc. 1996 Stock
Ownership Incentive Plan (the "Incentive Plan") and the PJ America, Inc. 1996
Non-Employee Directors Stock Option Plan (the "Directors Plan"). Shares of
common stock authorized for issuance are 600,000 under the Incentive Plan and
160,000 under the Directors Plan. In October 1998 the Board of Directors amended
the Incentive Plan to increase the number of shares available for issuance under
the Plan to 1,000,000 shares. The amendment will be submitted for stockholder
approval at the Annual Meeting of Shareholders on May 25, 1999. Options granted
under both plans generally expire ten years from the date of grant and vest over
one to four year periods.
The Incentive Plan also provides for awards of restricted stock, however
the Company has not granted any such awards.
Pro forma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company had accounted for its employee stock options granted subsequent
to December 25, 1994 under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1998,
1997, and 1996, respectively: risk-free interest rates of 6.0%; a dividend yield
of 0%; volatility factors of the expected market price of the Company's common
stock of .49, .48 and .49; and a weighted-average expected life of the option of
4.0 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair market value of its employee stock options.
38
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Stock Options (continued)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting periods. The Company's
unaudited pro forma information follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1996 1997 1998
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Pro forma net income $1,022 $3,440 $4,475
Pro forma earnings per share - Basic 0.45 0.64 0.77
Pro forma earnings per share - Diluted 0.45 0.63 0.75
</TABLE>
Information pertaining to options for 1996, 1997 and 1998 is as follows
(number of options in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding - beginning
of year - $ - 336 $12.50 540 $13.15
Granted 336 12.50 223 14.18 429 13.95
Exercised - - - - 45 13.21
Cancelled - - 19 15.42 66 13.82
- -----------------------------------------------------------------------------------------------------------
Outstanding - end of year 336 $12.50 540 $13.15 858 $13.50
===========================================================================================================
Exercisable - end of year - $12.50 83 $12.50 229 $13.47
===========================================================================================================
Weighted-average fair value
of options granted during
the year $5.63 $6.29 $6.24
===========================================================================================================
Weighted-average
contractual life 10.0 9.4 8.2
===========================================================================================================
</TABLE>
At December 27, 1998, approximately 20,000 shares were available for future
issuance under the Directors Plan. Contingent upon approval by the Company's
stockholders of the amendment to the Incentive Plan described above, 237,000
shares were available at December 27, 1998 for future issuance under the
Incentive Plan.
39
<PAGE>
PJ AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
13. Stock Options (continued)
The following table sets forth the reconciliation of basic and diluted
weighted average shares outstanding at December 27, 1998:
<TABLE>
<CAPTION>
(In thousands)
<S> <C>
Weighted-average shares outstanding - Basic 5,777
Shares issuable upon the exercise of outstanding
stock options and warrants 142
--------------
Weighted-average shares outstanding - Diluted 5,919
==============
</TABLE>
14. Quarterly Data (Unaudited) in thousands, except per share data
<TABLE>
<CAPTION>
1/st/ Quarter 2/nd/ Quarter 3/rd/ Quarter 4/th/ Quarter
- --------------------------------------------------------------------------------------------------------------------
1997 1998 1997 1998 1997 1998 1997 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Restaurant sales $10,606 $14,218 $11,985 $16,499 $11,890 $17,789 $13,647 $20,080
Operating income 1,180 1,471 1,162 1,684 1,200 1,685 1,432 1,807
Net income 845 1,168 841 1,290 955 1,270 1,157 1,339
Net income per
share - Basic .17 .20 .17 .22 .17 .22 .20 .23
Net income per
share - Diluted .16 .20 .16 .22 .17 .22 .20 .23
</TABLE>
For the first and second quarters of 1997, net income reflects a pro-forma
provision for income taxes assuming OPD was a C corporation rather than a S
corporation for each period.
40
<PAGE>
Report of Management
The consolidated financial statements appearing in this Annual Report have
been prepared by management, which is responsible for their preparation,
integrity and fair presentation. The statements have been prepared in accordance
with generally accepted accounting principles and necessarily include some
amounts that are based on management's best estimates and judgments.
Management is responsible for the system of internal controls over
financial reporting at PJ America, Inc. and its subsidiaries, a system designed
to provide reasonable assurance regarding the preparation of reliable published
financial statements. This system is augmented by written policies and
procedures and the selection and training of qualified personnel. Management
believes that the Company's system of internal controls over financial reporting
provides reasonable assurance that the financial records are reliable for
preparing financial statements.
The Audit Committee of the Board of Directors meets with the independent
auditors and management periodically to discuss internal controls over financial
reporting and other auditing and financial reporting matters. The Committee
reviews with the independent auditors the scope and results of the audit effort.
The Committee also meets with the independent auditors without management
present to ensure that the independent auditors have free access to the
Committee. The independent auditors are recommended by the Audit Committee of
the Board of Directors and selected by the Board of Directors. Based upon their
audit of the consolidated financial statements, the independent auditors, Ernst
& Young LLP, have issued their Report of Independent Auditors, which follows.
/s/ Douglas S. Stephens /s/ D. Ross Davison
__________________________________ _________________________________________
Douglas S. Stephens D. Ross Davison
President and C.E.O. Vice President, C.F.O. and Treasurer
41
<PAGE>
ERNST & YOUNG LLP,
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
PJ America, Inc.
We have audited the accompanying consolidated balance sheets of PJ America,
Inc. and Subsidiaries as of December 28, 1997 and December 27, 1998, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years ended December 29, 1996, December 28, 1997 and December 27, 1998.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of PJ America,
Inc. and Subsidiaries, at December 28, 1997 and December 27, 1998, and the
consolidated results of their operations and their cash flows for the years
ended December 29, 1996, December 28, 1997 and December 27, 1998 in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
January 28, 1999
42
<PAGE>
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
PART III
Items 10, 11, 12 and 13. Directors and Executive Officers of the Registrant;
Executive Compensation; Security Ownership of Certain Beneficial Owners
and Management; and Certain Relationships and Related Transactions.
The information required by these items, other than information set forth
in this Form 10-K under Item I, "Executive Officers of Registrant," is omitted
because the Company is filing a definitive proxy statement pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year covered
by this Form 10-K which includes the required information. The required
information contained in the Company's proxy statement is incorporated herein by
reference.
43
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) The following consolidated financial statements of PJ America, Inc. and
Subsidiaries and the report of independent auditors are included in Item
8:
<TABLE>
<CAPTION>
Page
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<S> <C>
Consolidated Balance Sheets as of December 28, 1997 and December 27, 1998... 22
Consolidated Statements of Income for the Years Ended December 29, 1996
December 28, 1997 and December 27, 1998..................................... 23
Consolidated Statements of Stockholders' Equity for the Years Ended
December 29, 1996, December 28, 1997 and December 27, 1998.................. 24
Consolidated Statements of Cash Flows for the Years Ended December 29, 1996,
December 28, 1997 and December 27, 1998..................................... 25
Notes to Consolidated Financial Statements.................................. 26
Report of Management........................................................ 41
Report of Independent Auditors.............................................. 42
</TABLE>
(a)(2) Consolidated Financial Statement Schedules:
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are not applicable and therefore have been omitted.
(a)(3) Exhibits:
3.1 The Company's Certificate of Incorporation. Exhibit 3.1 to the
Company's Registration Statements on Form S-1 (Registration No. 333-
11253) is incorporated herein by reference.
3.2 The Company's By-laws. Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (Registration No. 333-11253) is incorporated
herein by reference.
4 Specimen Stock Certificate. Exhibit 4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-11253) is incorporated
herein by reference.
10.1 Form of Registration Rights Agreement. Exhibit 10.1 to the Company's
Registration Statement on Form S-1 (Registration No. 333-11253) is
incorporated herein by reference.
10.2 Form of 1996 Stock Ownership Incentive Plan. Exhibit 10.2 to the
Company's Registration Statement on Form S-1 (Registration No. 333-
11253) is incorporated herein by reference.
10.3 Form of Non-Employee Directors 1996 Stock Incentive Plan. Exhibit 10.3
to the Company's Registration Statement on Form S-1 (Registration No.
333-11253) is incorporated herein by reference.
44
<PAGE>
10.4 Agreement relating to the Reorganization. Exhibit 10.4 to the
Company's Registration Statement on Form S-1 (Registration No. 333-
11253) is incorporated herein by reference.
10.5 Plan of Merger. Exhibit 10.5 to the Company's Registration Statement
on Form S-1 (Registration No. 333-11253) is incorporated herein by
reference.
10.6 Indemnification Agreement. Exhibit 10.6 to the Company's Registration
Statement on Form S-1 (Registration No. 333-11253) is incorporated
herein by reference.
10.8 Warrant issued to PJI. Exhibit 10.8 to the Company's Registration
Statement on Form S-1 (Registration No. 333-11253) is incorporated
herein by reference.
10.9 Agreement between PJI and Extra Cheese, Inc. relating to certain
Southern California counties; Puerto Rico; Vancouver, Canada; consent
for offering from PJI; the issuance of the warrant; and certain other
matters. Exhibit 10.9 to the Company's Registration Statement on Form
S-1 (Registration No. 333-11253) is incorporated herein by reference.
10.10 Development Agreement relating to the Utah territory. Exhibit 10.10 to
the Company's Registration Statement on Form S-1 (Registration No.
333-11253) is incorporated herein by reference.
10.11 Development Agreement relating to the development of an aggregate of
ten restaurants in Birmingham, Tuscaloosa and Auburn, Alabama. Exhibit
10.11 to the Company's Registration Statement on Form S-1
(Registration No. 333-11253) is incorporated herein by reference.
10.11(a) First Amendment to the Alabama Development Agreement. Exhibit 10.11(a)
to the Company's Registration Statement on Form S-1 (Commission File
No. 333-11253) is hereby incorporated by reference.
10.11(b) Second Amendment to the Alabama Development Agreement. Exhibit
10.11(b) to the Company's Registration Statement on Form S-1
(Commission File No. 333-11253) is hereby incorporated by reference.
10.11(c) Third Amendment to the Alabama Development Agreement. Exhibit
10.11(c) to the Company's Registration Statement on Form S-1
(Commission File No. 333-11253) is hereby incorporated by reference.
10.12 Form of Franchise Agreement relating to the Birmingham, Tuscaloosa and
Auburn, Alabama restaurants (e.g., Franchise Agreement dated February
18, 1992, by and between Extra Cheese, Inc. and PJI at 2503 McFarland
Blvd. W., Northport, Alabama 35476). Exhibit 10.12 to the Company's
Registration Statement on Form S-1 (Registration No. 333-11253) is
incorporated herein by reference.
45
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10.13 Development Agreement relating to the development of an aggregate of
four restaurants in Cullman, Jasper, Sylacauga and Talladega, Alabama.
Exhibit 10.13 to the Company's Registration Statement on Form S-1
(Registration No. 333-11253) is incorporated herein by reference.
10.14 Form of Franchise Agreement relating to the Cullman, Jasper, Sylacauga
and Talladega, Alabama restaurants (e.g., Franchise Agreement dated
August 14, 1995, by and between Extra Cheese, Inc. and PJI at 680
Highway 78 West, Jasper, Alabama 35501). Exhibit 10.14 to the
Company's Registration Statement on Form S-1 (Registration No.
333-11253) is incorporated herein by reference.
10.15 Development Agreement relating to the development of an aggregate of
five restaurants in Longview, Lufkin and Nacogdoches, Texas. Exhibit
10.15 to the Company's Registration Statement on Form S-1
(Registration No. 333-11253) is incorporated herein by reference.
10.16 Form of Franchise Agreement relating to the East Texas restaurants
(e.g., Franchise Agreement dated September 20, 1994, by and between
Textra Cheese Corp. and PJI at 2702 North Street, Nacogdoches, Texas
75961). Exhibit 10.16 to the Company's Registration Statement on Form
S-1 (Registration No. 333-11253) is incorporated herein by reference.
10.17 Development Agreement relating to the Virginia development of an
aggregate of 47 restaurants in Virginia Beach, Richmond and Norfolk,
Virginia. Exhibit 10.17 to the Company's Registration Statement on
Form S-1 (Registration No. 333-11253) is incorporated herein by
reference.
10.17(a) First Amendment to the Virginia Development Agreement. Exhibit
10.17(a) to the Company's Registration Statement on Form S-1
(Commission File No. 333-11253) is hereby incorporated by reference.
10.17(b) Second Amendment to the Virginia Development Agreement. Exhibit
10.17(b) to the Company's Registration Statement on Form S-1
(Commission File No. 333-11253) is hereby incorporated by reference.
10.17(c) Third Amendment to the Virginia Development Agreement. Exhibit
10.17(c) to the Company's Registration Statement on Form S-1
(Commission File No. 333-11253) is hereby incorporated by reference.
10.17(d) Fourth Amendment to the Virginia Development Agreement. Exhibit
10.17(d) to the Company's Registration Statement on Form S-1
(Commission File No. 333-11253) is hereby incorporated by reference.
10.18 Form of Franchise Agreement relating to the Virginia restaurants (e.g.
Franchise Agreement dated March, 31, 1994, by and between PJVA and PJI
at 10054 Robious Road, Richmond, Virginia 23235). Exhibit 10.18 to the
Company's Registration Statement on Form S-1 (Registration No.
333-11253) is incorporated herein by reference.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10.19 PJI's Waiver of Right of First Refusal (certain Utah, Iowa markets and
other markets). Exhibit 10.19 to the Company's Registration Statement
on Form S-1 (Registration No. 333-11253) is incorporated herein by
reference.
10.20 The Company's Right of First Refusal relating to certain Iowa
territories. Exhibit 10.20 to the Company's Registration Statement on
Form S-1 (Registration No. 333-11253) is incorporated herein by
reference.
10.24 Agreement between PJI and PJ Utah, LLC relating to development rights
to be granted with respect to the Utah territory. Exhibit 10.26 to the
Company's Registration Statement on Form S-1 (Registration No.
333-11253) is incorporated herein by reference.
10.25 Agreement and Plan of Merger among PJ America, Inc., PJAM Acquisition
Subsidiary, Inc., OPD Co., Roger P. Tennyson, Mary Ann Tennyson, Brian
J. Tennyson, Jeanne K. Tennyson, John H. Schnatter, Charles Schnatter
and Dan Holland dated May 30, 1997. Exhibit 2.1 to the Company's Form
8-K dated June 19, 1997, is hereby incorporated by reference.
10.26 PJ America, Inc. Registration Rights Agreement dated June 5, 1997
relating to the Agreement and Plan of Merger (OPD transaction).
Exhibit 10.1 to the Company's Form 8-K dated June 19, 1997, is hereby
incorporated by reference.
10.30 Development Agreement relating to development of 60 restaurants in
California.
10.31 Commissary License Agreement relating to the Company's agreement to
operate a commissary in Puerto Rico.
10.32 Development Agreement relating to development of 20 restaurants in
Puerto Rico.
10.33 Development Agreement relating to development of 36 restaurants in
Portland, Oregon, and surrounding areas.
10.34 Stock Purchase Agreement among PJ America, Inc., PJ Louisiana, Inc.
and Douglas S. Stephens, Robert W. Curtis, Jr., Michael M. Fleishman,
Merida Sherman, Nicholas Sherman, Richard F. Sherman, Frank O. Keener,
and Stephen P. Langford dated May 13, 1998.
10.35 Purchase Agreement among PJ America, Inc., Ohio Pizza Delivery Co.,
Inc., PJ Utah, LLC, and Members dated September 3, 1998.
21 Subsidiaries of the Company:
(a) PJ Cheese, Inc. an Alabama corporation
(b) Ohio Pizza Delivery Co., Inc. an Ohio corporation
(c) PJ Louisiana, Inc. a Louisiana corporation
(d) PJ Utah, LLC, a Utah limited liability corporation
(e) Pizza Caribe, Inc. a Puerto Rico corporation
</TABLE>
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: February 12, 1999 PJ AMERICA, INC.
By: /s/ Douglas S. Stephens
------------------------------------
Douglas S. Stephens
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title
- --------- -----
<S> <C> <C>
____________________________ Chairman of the Board February 12, 1999
Richard F. Sherman
____________________________ Chief Executive Officer, February 12, 1999
Douglas S. Stephens President and Director
/s/ D. Ross Davison Vice President--Chief Financial February 12, 1999
- ---------------------------- Officer and Treasurer (Chief
D. Ross Davison Financial and Accounting Officer)
____________________________ Director February 12, 1999
Michael M. Fleishman
____________________________ Director February 12, 1999
Martin T. Hart
____________________________ Director February 12, 1999
Frank O. Keener
____________________________ Director February 12, 1999
Stephen P. Langford
____________________________ Director February 12, 1999
Charles W. Schnatter
</TABLE>
48
<PAGE>
EXHIBIT 10.30
PAPA JOHN'S
DEVELOPMENT AGREEMENT
Developer: PJ America, Inc.
Address: P.O. Box 611165
Birmingham, AL 35261-1165
Number of Restaurants: Thirty-seven (37)
Development Area: Kern, Ventura, San Luis Obispo,
Santa Barbara and Northern
Los Angeles Counties in California
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. Grant.................................................................. 2
2. Development Fee........................................................ 3
3. Development of Restaurants; Schedule for Completion.................... 3
4. Term................................................................... 7
5. Construction or Remodeling............................................. 7
6. Your Organization, Operation and Ownership............................. 7
7. Your Covenants......................................................... 8
8. Principal Operator..................................................... 10
9. Default and Termination................................................ 11
10. Assignment or Transfer................................................. 13
11. No Grant of Franchise or Franchise Rights.............................. 14
12. Notices................................................................ 14
13. Independent Contractor; Indemnification................................ 15
14. Enforcement............................................................ 16
15. Acknowledgements....................................................... 20
16. Miscellaneous.......................................................... 22
</TABLE>
(i)
<PAGE>
DEVELOPMENT AGREEMENT
---------------------
THIS DEVELOPMENT AGREEMENT ("Agreement") is made and entered into this
_____ day of June, 1997, by and between PAPA JOHN'S INTERNATIONAL, INC., a
Delaware corporation ("we", "us" or "Papa John's"), and PJ AMERICA, INC., a
Delaware corporation ("you"). If you are a corporation, limited liability
company or partnership, certain provisions of the Agreement also apply to your
owners and will be noted.
RECITALS:
--------
A. We and our Affiliates (defined below) have expended time, money and
effort to develop a unique system for operating retail restaurants devoted
primarily to carry-out and delivery of pizza and other food items. The chain of
current and future Papa John's restaurants are referred to herein as the "Papa
John's Chain" or the "Chain".
B. The Chain is characterized by a unique system which includes special
recipes and menu items; distinctive design, decor, color scheme and furnishings;
software and programs; standards, specifications and procedures for operations;
procedures for quality control; training assistance; and advertising and
promotional programs all of which we may improve, amend and further develop from
time to time (the "System").
C. We identify our goods and services with certain service marks, trade
names and trademarks, including but not limited to, "Papa John's," "Papa John's
Pizza," "Pizza Papa John's Delivering the Perfect Pizza!" and "Better
Ingredients. Better Pizza." as well as certain other trademarks, service
marks, slogans, logos and emblems that have been and may be designated for use
in connection with the System from time to time (the "Marks").
<PAGE>
D. You desire to obtain certain rights to develop one or multiple Papa
John's Pizza restaurant(s) in the "Development Area" (as defined below) in
accordance with the terms of this Agreement.
E. We have agreed to grant you such rights;
NOW, THEREFORE, the parties agree as follows:
1. Grant.
-----
(a) Subject to the terms and conditions of this Agreement and your
continuing faithful performance, we hereby grant to you the right and obligation
to establish 37 Papa John's restaurant(s) (at specific locations we approve) in
the areas specified on attached Exhibit A. (The Papa John's restaurants that
you develop pursuant to this Agreement are collectively referred to as the
"Restaurants" and individually as a "Restaurant"; the areas specified on Exhibit
A are collectively referred to as the "Development Area"). Notwithstanding the
foregoing, enclosed malls, institutions (such as hospitals or schools),
airports, parks (including theme parks), and sports arenas shall be excluded
from the Development Area unless otherwise agreed by us in writing, and absent
such agreement, we may open Papa John's restaurants, or franchise the right to
open Papa John's restaurants to other persons at any of these locations,
regardless of where they are located.
(b) Each Restaurant shall be established and operated pursuant to a
separate "Franchise Agreement" to be entered into between you and us. As used
herein, the term "Franchise Agreement" shall mean the form of Papa John's
Franchise Agreement (for the initial Restaurant) or Short Form Franchise
Agreement (for each subsequent Restaurant) to be executed for each Restaurant
developed under this Agreement and all attachments and exhibits thereto.
-2-
<PAGE>
(c) Except as may be otherwise provided herein or in the Franchise
Agreements, we shall not locate, nor license another to locate, a Papa John's
restaurant in the Development Area during the "Term" (as defined in Section 4).
(d) This Agreement is not a franchise agreement and we do not grant
you any franchise rights or other rights to use the Marks or System under this
Agreement.
(e) You have no right to license or subfranchise others to use the
Marks or the System, or to enter into any agreement with respect to the Marks or
System.
2. Development Fee. You have paid to us a development fee of One Hundred
Eighty-five Thousand Dollars ($185,000) ("Development Fee") (i.e. Five Thousand
Dollars ($5,000) for each Restaurant to be developed), receipt of which we
acknowledge. The Development Fee was fully earned by us when paid, is non-
refundable and is not contingent upon our rendering any further performance.
The Development Fee is in consideration of, among other things, the development
rights granted to you, the reservation of the Development Area, the development
opportunities lost or deferred as a result of the rights granted to you in this
Agreement and the administrative and other expenses that we have incurred.
However, $5,000 of the Development Fee will be credited against each Initial
Franchise Fee at the time it is paid, as provided in Section 3.
3. Development of Restaurants; Schedule for Completion.
---------------------------------------------------
(a) You shall have the number of Restaurants open and operating within
the time frame set forth in subsection 3. below, and you shall exercise each
such development right only at locations that we have approved within the
Development Area.
(b) With respect to each proposed location, you shall submit a
completed site evaluation form, together with such other information and
materials as we may reasonably request. We shall have 30 days after receipt of
such information to accept or reject each proposed location.
-3-
<PAGE>
If we fail to respond within such 30 day period, the location submitted by you
shall be deemed to be approved. We will not unreasonably withhold our approval
of a location. In approving or disapproving any proposed site, we will consider
such matters as we deem material, including, without limitation, demographic
characteristics of the proposed site, traffic patterns, parking, the predominant
character of the neighborhood, competition from other businesses providing
similar services within the area (including other Papa John's Restaurants), the
proximity to other businesses, the rights granted to our other franchisees, the
nature of other businesses in proximity to the site, and other commercial
characteristics (including the purchase price or rental obligations and other
lease terms for the proposed site) and the size of the premises, appearance, and
other physical characteristics of the proposed site. Approval of a site by us
does not constitute an assurance, representation or warranty of any kind,
expressed or implied, as to the successful operation of a Papa John's
Restaurant, or for any other purpose. Our approval of a site indicates only that
we believe the site complies with an acceptable minimum criteria that we
establish solely for our purposes as of the time period encompassing the
evaluation. You acknowledge that application of criteria that have been
effective with respect to other sites and premises may not be predictive of
potential for all sites. Further, demographic and/or economic factors included
in our criteria could change and other relevant factors that might alter the
potential of a site may be excluded from our criteria. The uncertainty and
instability of such criteria are beyond our control. We are not responsible if a
site that we approve fails to meet your expectations as to potential revenue or
operational criteria or for your failure to locate the required number of
suitable sites in the Development Area. You further acknowledge and agree that
your acceptance of a Franchise for the operation of a Papa John's Restaurant at
a site is based on your own independent investigation of the suitability of a
site. Any proposed lease shall include an addendum in the form of Exhibit A to
the Franchise Agreement, or shall contain terms and conditions substantially
similar to those contained in Exhibit A to the Franchise Agreement. Any changes
in the language set forth in Exhibit A must be approved by us in advance in
writing.
(c) We shall deliver the Franchise Agreement to you within 20 days
after you provide the address and telephone number for an approved location that
you have leased or
-4-
<PAGE>
purchased. The Franchise Agreement for such location must be signed by you and
submitted to us along with payment of the initial franchise fee within 10 days
after it is delivered to you.
(d) The approval of a location and the delivery of a Franchise
Agreement by us shall be conditioned upon a determination by us, in our
reasonable judgment, that:
(i) You have the financial and operational capacity to develop
and operate the Restaurant;
(ii) the site that you propose for the Restaurant is within the
Development Area and is a suitable site based upon criteria that we establish
from time to time; and
(iii) You and your owners are in compliance with this Agreement
and all Franchise Agreements executed pursuant to this Agreement.
(e) Notwithstanding any provision of any Franchise Agreement entered
into between us and you, you shall exercise each development right as follows:
DEVELOPMENT SCHEDULE
--------------------
Cumulative Number of
Dates on Which Each Restaurants to be
Restaurant Shall be Open Open and Operating*
- ------------------------ --------------------
April 1, 1998 1
August 1, 1998 2
November 1, 1998 3
February 1, 1999 4
June 1, 1999 5
August 1, 1999 6
October 1, 1999 7
December 1, 1999 8
February 1, 2000 9
-5-
<PAGE>
June 1, 2000 10
August 1, 2000 11
DEVELOPMENT SCHEDULE (cont.)
--------------------
Cumulative Number of
Dates on Which Each Restaurants to be
Restaurant Shall be Open Open and Operating*
- ------------------------ --------------------
October 1, 2000 12
December 1, 2000 13
February 1, 2001 14
June 1, 2001 15
August 1, 2001 16
October 1, 2001 17
December 1, 2001 18
February 1, 2002 19
June 1, 2002 20
August 1, 2002 21
October 1, 2002 22
December 1, 2002 23
February 1, 2003 24
June 1, 2003 25
August 1, 2003 26
October 1, 2003 27
December 1, 2003 28
February 1, 2004 29
June 1, 2004 30
August 1, 2004 31
October 1, 2004 32
December 1, 2004 33
February 1, 2005 34
June 1, 2005 35
August 1, 2005 36
October 1, 2005 37
[* - Includes only those Restaurants to be developed pursuant to this
Development Agreement.]
(f) The Initial Franchise Fee to be paid by you for each Restaurant
shall be $20,000; provided that $5,000 of the Development Fee shall be credited
against the Initial
-6-
<PAGE>
Franchise Fee. The net amount of the Initial Franchise Fee ($15,000) shall be
paid at the time each Franchise Agreement is executed.
(g) It shall be your responsibility to ensure that each Restaurant is
constructed or remodeled, and equipped and operated in compliance with all laws,
ordinances and governmental rules and regulations and the Franchise Agreement,
and you shall obtain all necessary permits and licenses relating thereto.
4. Term. Unless sooner terminated as provided in this Agreement, this
Agreement shall expire on the earlier to occur of: (a) the date on which all the
Restaurants have been developed, or (b) 12:00 midnight on the last date set
forth on the Development Schedule (the "Term"). Upon the termination or
expiration of this Agreement, all unexercised development rights shall expire.
5. Construction or Remodeling. You shall, at your own expense, construct
or remodel the Restaurant at each location in accordance with the then-current
specifications and standards established for the System and the terms of the
Franchise Agreement. You shall allow us and our agents and employees access to
all areas of the premises of each Restaurant at such times as we or they may
reasonably request and you shall cooperate fully with us and our agents and
employees in preparing specifications applicable to the location of each
Restaurant to be developed hereunder. However, it shall be your obligation to
have plans drawn showing the layout of all equipment, signs and leasehold
improvements, and such plans shall be subject to our approval, which approval
shall not be unreasonably withheld. You shall not begin construction or
remodeling on any Restaurant until the Franchise Agreement has been fully signed
and we have approved the plans for such Restaurant.
6. Your Organization, Operation and Ownership. If you are a corporation,
partnership, limited liability company or other entity:
-7-
<PAGE>
(a) If we request from time to time, you shall furnish us with your
Articles of Incorporation, Articles of Organization, Operating Agreement, By-
Laws and other governing documents (and any amendments or modifications
thereof), minutes and resolutions and all agreements or other documents, records
and information pertaining to your existence and operation.
(b) You shall confine your business activities exclusively to the
establishment, management and operation of Papa John's restaurants pursuant to
agreements with us.
(c) You shall, at the same time you execute this Agreement, and at
such other times as we may request, disclose the name and address of each person
or entity owning a beneficial interest in you, and you shall not issue any
additional securities, nor allow the "transfer" (as defined in Section 10) of
any of your outstanding securities, except as provided in Section 10.
(d) You shall at all times comply with all applicable laws,
ordinances, rules and regulations of governmental bodies.
(e) You shall cause all persons or entities owning any interest in
you to sign the Owner Agreement in the form we provide.
7. Your Covenants.
--------------
(a) Covenant Not-to-Compete. You covenant and agree that during the
Term and for a period of two years after the expiration or termination of this
Agreement, regardless of the cause for such expiration or termination (the
"Restricted Period"), you shall not, anywhere within either (1) the boundaries
of the Development Area including, for purposes of this Section 7 only, any
locations excluded from the Development Area by the operation of Section 1. (a);
or (2) a 10-mile radius of any business location at which you, we or our
Affiliate or our franchisee then conducts a Papa John's business, engage in any
of the following activities:
-8-
<PAGE>
(i) directly or indirectly enter into the employ of, render
any service to or act in concert with any person, partnership, limited liability
company, corporation or other entity that owns, operates, manages, franchises or
licenses any business that (A) sells pizza or other non-pizza products
(excluding soft drinks) that are the same as those sold by Papa John's
restaurants on a delivery or carry-out basis, including, without limitation,
business formats such as Domino's, Pizza Hut, Mr. Gatti's, Sbarro and Little
Caesars, or (B) derives 20% or more of its gross revenues, at the retail level,
from the sale of pre-cooked, ready-to-eat food products on a delivery basis (a
"Competitive Business"); or
(ii) directly or indirectly engage in any such Competitive
Business on your own account; or
(iii) become interested in any such Competitive Business
directly or indirectly as a partner, member, shareholder, principal, agent,
consultant or in any other relationship or capacity; provided, that the purchase
of a publicly traded security of a corporation engaged in such business or
service shall not in itself be deemed violative of this Agreement so long as you
do not own, directly or indirectly, more than 1% of the securities of such
corporation.
To the extent required by the laws of the state in which the Restaurants are to
be developed, the duration or the geographic areas included within the foregoing
covenants, or both, shall be deemed amended in accordance with Section 7.(f).
(b) Appropriation and Disclosure of Information. Except as permitted
by the Franchise Agreement, you will not at any time use, copy or duplicate the
System or any aspect thereof, or any of our trade secrets, recipes, methods of
operation, processes, formulas, advertising, marketing, designs, trade dress,
plans, know-how or other proprietary ideas or information, nor will you convey,
divulge, make available or communicate such information to any third party or
assist others in using, copying or duplicating any of the foregoing.
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(c) Infringement. You will not at any time commit any act that would
infringe upon or impair the value of the System or the Marks, nor will you
engage in any business or market any product or service under a trade-name,
trademark, service mark, logo or design that is confusingly or deceptively
similar to any of the Marks.
(d) Solicitation of Employees. You agree that from and after the date
of this Agreement, you will not solicit, entice or induce, directly or
indirectly, any employee of us or an Affiliate or our franchisees to leave their
employment to work with you or with any person or entity with whom you are or
become affiliated.
(e) Reasonableness of Scope and Duration. You agree that the
covenants and agreements contained herein are, taken as a whole, reasonable with
respect to the activities covered and their geographic scope and duration, and
you shall not raise any issue of the reasonableness of the areas, activities
or duration of any such covenants in any proceeding to enforce any such
covenants. You acknowledge and agree that you have other skills and resources
and that the restrictions contained in this Section 7 will not hinder your
activities or ability to make a living either under this Agreement or in
general.
(f) Enforceability. You agree that we may not be adequately
compensated by damages for a breach by you of any of the covenants and
agreements contained in this Section, and that we shall, in addition to all
other remedies, be entitled to injunctive relief and specific performance.
The covenants and agreements contained in this Section shall be construed as
separate covenants and agreements, and if any court shall finally determine that
the restraints provided for in any such covenants and agreements are too broad
as to the area, activity or time covered, said area, activity or time covered
may be reduced to whatever extent the court deems reasonable, and such covenants
and agreements shall be enforced as to such reduced area, activity or time.
8. Principal Operator. You shall designate an individual to serve as
your "Principal Operator." The Principal Operator shall meet the following
qualifications:
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(a) The Principal Operator shall own at least a 5% equity interest in
you; provided that you shall not be in default of this requirement if the
Principal Operator is entitled to a bonus of not less than 5% of the net profits
of the Restaurant, payable after the end of each Period (as defined in the
Franchise Agreement), and also has the right to acquire not less than 5% equity
interest in you within 12 months of his or her hire date, which rights shall be
evidenced by a written agreement between the Principal Operator and you. You
shall provide us with a copy of any such agreement upon request. Once the
Principal Operator has acquired an equity interest in you, he or she must
continue to own that interest (or a greater interest) during the entire period
he or she serves as the Principal Operator and must comply with Section 6 of
this Agreement.
(b) The Principal Operator shall devote full time and best efforts to
the supervision and conduct of the development and operation of the Restaurants
contemplated under this Agreement and shall agree to be bound by the
confidentiality and non-competition provisions of the Owner Agreement. At such
time as the Principal Operator becomes an owner of an interest in you, he or she
must agree to be bound by all provisions of the Owner Agreement.
(c) The Principal Operator shall be a person we reasonably approve who
shall successfully complete our initial training requirements and who shall
participate in and successfully complete all additional training as we may
reasonably designate.
If, at any time or for any reason, the Principal Operator no longer
qualifies to act as such, you shall promptly designate another Principal
Operator subject to the same qualifications listed above. You shall immediately
notify us of the termination of the Principal Operator's employment with you,
whether voluntary or involuntary.
9. Default and Termination.
(a) Automatic Termination. You shall be in default under this
Agreement, and this Agreement and all rights granted in it shall automatically
terminate without notice to you, (i) if you make a general assignment for the
benefit of creditors or if a petition in bankruptcy is
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filed by you; or (ii) such a petition is filed against and not opposed by you;
or (iii) if you are adjudicated as bankrupt or insolvent; or (iv) if a bill in
equity or other proceeding is filed for the appointment of a receiver or other
custodian for your business or assets is filed and consented to by you; or (v)
if a receiver or other custodian (permanent or temporary) of your assets or
property, or any part thereof, is appointed by any court of competent
jurisdiction; or (vi) if proceedings for a composition with creditors under any
state or federal law are instituted by or against you; or (vii) if a final
judgment remains unsatisfied or of record for thirty (30) days or longer (unless
supersedeas bond is filed); or (viii) if you are dissolved; or (ix) if any
portion of your interest in any Papa John's franchise becomes subject to an
attachment, garnishment, levy or seizure by any creditor or any other person
claiming against or in your rights; or (x) if execution is levied against your
business or property; or (xi) if the real or personal property of any Restaurant
shall be sold after levy thereupon by any sheriff, marshal, or constable.
(b) Without Notice. You shall be in default under this Agreement,
and we may, at our option, terminate this Agreement and all rights granted under
it without affording you any opportunity to cure such default, effective upon
the earlier of (1) receipt of the notice of termination by you, or (2) five days
after mailing of such notice by us, upon the occurrence of any of the following
events:
(i) if you fail to strictly comply with the development
schedule set forth in Section 3 ;
(ii) if any Franchise Agreement entered into pursuant to this
Agreement or otherwise is terminated as a result of your breach or default;
(iii) if you make or attempt to make any transfer, whether
voluntary or involuntary, of this Agreement or any interest herein, or of any
rights or obligations arising under this Agreement, or of any interest in you,
or of any material portion of your assets, without our prior written consent,
except as otherwise provided under the Franchise Agreement; or
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(iv) if you fail to comply with any of your covenants set forth
in Section 7 of this Agreement.
(c) With Notice. For any other breach or default under this
Agreement, we will provide you with written notice of default and 15 days to
cure or, if a default cannot be reasonably be cured within 15 days, to initiate
within that time substantial and continuing action to cure such default and to
provide us with evidence of such actions. If the defaults specified in such
notice are not cured within the 15 day period, or if substantial and continuing
action to cure has not been initiated, we may, at our option, terminate this
Development Agreement and all rights granted to you under it by giving written
notice of such termination to you. The notice of termination shall be effective
on the earlier of (i) the date of receipt of the notice by you or (ii) five days
after the mailing of such notice by us.
(d) Effect of Termination. Upon termination of this Agreement, all
your rights under it shall terminate and you shall have no further right to
establish any Restaurants. In addition, upon termination of this Agreement, we
shall have the right to open and operate, or to franchise others to open and
operate, Papa John's restaurants anywhere within the Development Area, except
that we may not locate or franchise another to locate a Papa John's restaurant
within the "Territory" provided for in any Franchise Agreement that remains in
effect after the date of termination.
10. Assignment or Transfer.
----------------------
(a) Transfer by Us. We may transfer this Agreement or any portion of
it, or any or all of our rights, obligations or interests under it, without
restriction. Upon any transfer or assignment of this Agreement by us, we shall
be released from all obligations and liabilities arising or accruing in
connection with this Agreement after the date of such transfer or assignment.
(b) Transfer by You. This Agreement, and your rights and obligations
under it, are and shall remain personal to you. Any proposed transfer by you or
any of your owners
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(regardless of the form of transfer) shall be subject to the same terms and
conditions contained in the Franchise Agreement. As used herein, the term
"transfer" shall mean any sale, assignment, gift, pledge, mortgage or any other
encumbrance, transfer by bankruptcy, transfer by judicial order, merger,
consolidation, share exchange, transfer by operation of law or otherwise,
whether direct or indirect, voluntary or involuntary, of this Agreement or any
interest in it, or any rights or obligations arising under it, or of any
material portion of your assets, or of any interest in you.
11. No Grant of Franchise or Franchise Rights. This Agreement does not
grant you a franchise or any rights of a Papa John's franchisee. To the fullest
extent permissible by law, you waive the applicability of any law that would
constitute this Agreement or any rights granted under it as a franchise
agreement or as granting any franchise rights.
12. Notices. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be given (a) by personal delivery or (b) provided such notice,
request, demand or communication is actually received by the party to which it
is addressed in the ordinary course of delivery, by deposit in the United States
mail, postage prepaid, or (c) by registered or certified mail, return receipt
requested, postage prepaid, or by delivery to a nationally-recognized overnight
courier service, in each case, addressed as follows, or to such other person or
entity as either party shall designate by notice to the other in accordance
herewith:
Us: If by Mail:
P.O. Box 99900
Louisville, Kentucky 40269-9990
ATTN: General Counsel
If by Courier or Personal Delivery:
10801 Electron Drive, Suite 100
Louisville, Kentucky 40299-3880
ATTN: General Counsel
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You: P.O. Box 611165
Birmingham, Alabama 35261-1165
ATTN: Douglas Stephens
Except as otherwise provided herein, a notice shall be deemed to have been
given on the date of personal delivery to a party or the date deposited in the
United States mail or with a nationally-recognized overnight courier.
13. Independent Contractor; Indemnification.
---------------------------------------
(a) Independent Contractor. It is understood and agreed by the
parties that this Agreement creates only a contractual relationship between the
parties subject to the normal rule of contract law. This Agreement does not
create a fiduciary relationship between us and you and you are and shall remain
an independent contractor. Nothing in this Agreement is intended to constitute
either party an agent, legal representative, subsidiary, joint venturer,
partner, employee, or servant of the other for any purpose whatsoever. You agree
to hold yourself out to the public as an independent contractor, separate and
apart from us. You agree that you shall not make any contract, agreement,
warranty, or representation on our behalf without our prior written consent, and
you agree that you shall not incur any debt or other obligation in our name.
This Agreement shall not be deemed to confer any rights or benefits to any
person or entity not expressly named herein.
(b) Business Management. You agree and acknowledge that: (i) we
will have no responsibility for the day-to-day operations of any Restaurant
developed under this Agreement or the management of your business; and (ii) you
shall independently control the operation of your business and the results of
your operations will depend almost exclusively on your business acumen and
promotional and managerial efforts.
(c) Indemnification. We shall not be liable by reason of any act or
omission of you in your development, construction or conduct of the Restaurants
or for any claim, cause of action or judgement arising therefrom against you or
us. You agree to hold harmless, defend and indemnify us and our affiliates,
officers, directors, agents, and employees, from and against
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any and all losses, expenses, judgments, claims, attorney fees and damages
arising out of or in connection with any claim or cause of action in which we
shall be a named defendant and that arises, directly or indirectly, out of the
operation of, or in connection with, your Restaurants, other than a claim
resulting directly from our negligence.
14. Enforcement.
-----------
(a) ARBITRATION. EXCEPT FOR CONTROVERSIES, DISPUTES OR CLAIMS
RELATED TO OR BASED ON (1) YOUR USE OF THE MARKS AFTER THE EXPIRATION OR
TERMINATION OF THIS AGREEMENT OR, AT OUR OPTION, YOUR VIOLATION OF ANY PROVISION
OF SECTION 7 HEREOF; OR (2) ANY ACTION ARISING OUT OF OR RELATING TO ANY
FINANCING PROVIDED TO YOU BY US OR OUR AFFILIATES AND THE AGREEMENTS, NOTES,
LIENS AND SECURITY INTERESTS RELATED THERETO AND THE ENFORCEMENT, INTERPRETATION
OR COLLECTION THEREOF, ALL CONTROVERSIES, DISPUTES OR CLAIMS BETWEEN US
(INCLUDING OUR AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS OR
EMPLOYEES) AND YOU (INCLUDING YOUR OWNERS, GUARANTORS, AFFILIATES AND EMPLOYEES,
IF APPLICABLE) ARISING OUT OF OR RELATED TO:
(i) THIS AGREEMENT OR ANY OTHER AGREEMENT BETWEEN YOU AND US OR
ANY PROVISION OF ANY SUCH AGREEMENT;
(ii) OUR RELATIONSHIP WITH YOU, INCLUDING ISSUES RELATING TO
OUR DECISION TO TERMINATE THAT RELATIONSHIP;
(iii) THE VALIDITY OF THIS AGREEMENT OR ANY OTHER AGREEMENT
BETWEEN YOU AND US OR ANY PROVISION OF ANY SUCH AGREEMENT; OR
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(iv) ANY STANDARD, SPECIFICATION OR OPERATING PROCEDURE RELATING
TO THE DEVELOPMENT, ESTABLISHMENT OR OPERATION OF THE RESTAURANTS
WILL BE SUBMITTED FOR BINDING ARBITRATION TO THE LOUISVILLE, KENTUCKY
OFFICE OF THE AMERICAN ARBITRATION ASSOCIATION ON DEMAND OF EITHER PARTY. SUCH
ARBITRATION PROCEEDING WILL BE CONDUCTED IN LOUISVILLE, KENTUCKY AND, EXCEPT AS
OTHERWISE PROVIDED IN THIS AGREEMENT, WILL BE HEARD BY ONE ARBITRATOR IN
ACCORDANCE WITH THE THEN CURRENT FRANCHISING ARBITRATION RULES, IF ANY,
OTHERWISE THE THEN CURRENT COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION. ALL MATTERS RELATING TO ARBITRATION WILL BE GOVERNED BY
THE FEDERAL ARBITRATION ACT (9 U.S.C. (S)(S) 1 ET SEQ.) AND NOT BY ANY STATE
ARBITRATION LAW.
THE ARBITRATOR WILL HAVE THE RIGHT TO AWARD OR INCLUDE IN THE AWARD ANY
RELIEF THAT THE ARBITRATOR DEEMS PROPER IN THE CIRCUMSTANCES, INCLUDING, WITHOUT
LIMITATION, MONEY DAMAGES (WITH INTEREST ON UNPAID AMOUNTS FROM THE DATE DUE),
SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF AND ATTORNEYS' FEES AND COSTS, PROVIDED
THAT THE ARBITRATOR WILL NOT HAVE THE RIGHT TO DECLARE ANY MARK GENERIC OR
OTHERWISE INVALID OR, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, TO AWARD
EXEMPLARY OR PUNITIVE DAMAGES. THE AWARD AND DECISION OF THE ARBITRATOR WILL BE
CONCLUSIVE AND BINDING UPON ALL PARTIES HERETO, AND JUDGMENT UPON THE AWARD MAY
BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION.
WE AND YOU AGREE TO BE BOUND BY THE PROVISIONS OF ANY LIMITATION ON THE
PERIOD OF TIME IN WHICH CLAIMS MUST BE BROUGHT UNDER APPLICABLE LAW OR THIS
AGREEMENT, WHICHEVER EXPIRES
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EARLIER. WE AND YOU FURTHER AGREE THAT, IN CONNECTION WITH ANY SUCH ARBITRATION
PROCEEDING, EACH PARTY MUST SUBMIT OR FILE ANY CLAIM THAT WOULD CONSTITUTE A
COMPULSORY COUNTERCLAIM (AS DEFINED BY RULE 13 OF THE FEDERAL RULES OF CIVIL
PROCEDURE) WITHIN THE SAME PROCEEDING AS THE CLAIM TO WHICH IT RELATES. ANY SUCH
CLAIM THAT IS NOT SUBMITTED OR FILED AS DESCRIBED ABOVE WILL BE FOREVER BARRED.
WE AND YOU AGREE THAT ARBITRATION WILL BE CONDUCTED ON AN INDIVIDUAL, NOT A
CLASS-WIDE, BASIS, AND THAT AN ARBITRATION PROCEEDING BETWEEN US (INCLUDING OUR
AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES) AND YOU
(INCLUDING YOUR OWNERS, GUARANTORS, AFFILIATES AND EMPLOYEES, IF APPLICABLE) MAY
NOT BE CONSOLIDATED WITH ANY OTHER ARBITRATION PROCEEDING BETWEEN US AND ANY
OTHER PERSON, CORPORATION, LIMITED LIABILITY COMPANY OR PARTNERSHIP.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION, WE AND
YOU EACH HAVE THE RIGHT IN A PROPER CASE TO OBTAIN TEMPORARY RESTRAINING ORDERS
AND TEMPORARY OR PRELIMINARY INJUNCTIVE RELIEF FROM A COURT OF COMPETENT
JURISDICTION; PROVIDED, HOWEVER, THAT WE AND YOU MUST CONTEMPORANEOUSLY SUBMIT
OUR DISPUTE FOR ARBITRATION ON THE MERITS AS PROVIDED HEREIN EXCEPT AS OTHERWISE
PROVIDED IN THE FIRST PARAGRAPH OF THIS SECTION 14.
THE PROVISIONS OF THIS SECTION ARE INTENDED TO BENEFIT AND BIND CERTAIN
THIRD PARTY NON-SIGNATORIES AND WILL CONTINUE IN FULL FORCE AND EFFECT
SUBSEQUENT TO AND NOTWITHSTANDING THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT.
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(b) GOVERNING LAW. ALL MATTERS RELATING TO ARBITRATION WILL BE
GOVERNED BY THE FEDERAL ARBITRATION ACT (9 U.S.C. (S)(S)1 ET SEQ). EXCEPT TO
THE EXTENT GOVERNED BY THE FEDERAL ARBITRATION ACT, THE UNITED STATES TRADEMARK
ACT OF 1946 (LANHAM ACT, 15 U.S.C. SECTIONS 1051 ET SEQ.) OR OTHER FEDERAL LAW,
THIS AGREEMENT AND ALL CLAIMS ARISING FROM THE RELATIONSHIP BETWEEN US AND YOU
WILL BE GOVERNED BY THE LAWS OF THE STATE OF KENTUCKY WITHOUT REGARD TO ITS
CONFLICT OF LAWS PRINCIPLES.
(c) CONSENT TO JURISDICTION AND VENUE. YOU AND YOUR OWNERS AGREE THAT
ALL JUDICIAL ACTIONS BROUGHT BY US AGAINST YOU OR YOUR OWNERS OR BY YOU OR YOUR
OWNERS AGAINST US OR OUR SUBSIDIARIES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS
OR EMPLOYEES MUST BE BROUGHT IN A COURT OF COMPETENT JURISDICTION IN JEFFERSON
COUNTY, KENTUCKY OR FEDERAL DISTRICT COURT FOR THE WESTERN DISTRICT OF KENTUCKY
AND YOU (AND EACH OWNER) IRREVOCABLY SUBMIT TO THE JURISDICTION OF SUCH COURTS
AND WAIVE ANY OBJECTION YOU, HE OR SHE MAY HAVE TO EITHER THE JURISDICTION OF OR
VENUE IN SUCH COURTS. NOTWITHSTANDING THE FOREGOING, WE MAY BRING AN ACTION TO
OBTAIN A RESTRAINING ORDER OR TEMPORARY OR PRELIMINARY INJUNCTION, OR ENFORCE AN
ARBITRATION AWARD, IN ANY FEDERAL OR STATE COURT OF GENERAL JURISDICTION IN THE
STATE IN WHICH YOU RESIDE OR IN WHICH THE RESTAURANTS ARE LOCATED.
(d) WAIVER OF PUNITIVE DAMAGES. EXCEPT WITH RESPECT TO YOUR
OBLIGATION TO INDEMNIFY US PURSUANT TO SECTION 13 AND CLAIMS WE BRING AGAINST
YOU FOR YOUR UNAUTHORIZED USE OR DISCLOSURE OF ANY CONFIDENTIAL INFORMATION, WE
AND YOU AND YOUR OWNERS WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT
TO OR CLAIM FOR
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ANY PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER AND AGREE THAT, IN THE EVENT
OF A DISPUTE BETWEEN US, THE PARTY MAKING A CLAIM WILL BE LIMITED TO EQUITABLE
RELIEF AND TO RECOVERY OF ANY ACTUAL DAMAGES IT SUSTAINS.
(e) WAIVER OF JURY TRIAL. WE AND YOU IRREVOCABLY WAIVE TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT
BY EITHER OF US.
(f) LIMITATIONS OF CLAIMS. EXCEPT FOR CLAIMS BROUGHT BY US WITH
REGARD TO YOUR OBLIGATIONS UNDER SECTIONS 7.(a), 7.(b) AND 7.(c), AND TO
INDEMNIFY US PURSUANT TO SECTION 13, ANY AND ALL CLAIMS ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE RELATIONSHIP OF YOU AND US PURSUANT TO THIS
AGREEMENT WILL BE BARRED UNLESS AN ACTION IS COMMENCED WITHIN ONE (1) YEAR FROM
THE DATE ON WHICH THE ACT OR EVENT GIVING RISE TO THE CLAIM OCCURRED, OR ONE (1)
YEAR FROM THE DATE ON WHICH YOU OR WE KNEW OR SHOULD HAVE KNOWN, IN THE EXERCISE
OF REASONABLE DILIGENCE, OF THE FACTS GIVING RISE TO SUCH CLAIMS, WHICHEVER
OCCURS FIRST.
(g) Costs, Expenses and Attorneys' Fees. Except as provided in
Section 13 each party shall pay its own costs, expenses and attorneys' fees in
any action, claim, suit or proceeding arising out of this Agreement or the
franchise relationship of the parties.
15. Acknowledgements.
Your Representations. You hereby acknowledge and represent that:
(a) all information submitted to us by you or those owning an interest
in you, including all applications, financial statements and other documents and
information, is true and
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correct in all respects and that it does not omit any statement or item of
material fact necessary to make the statements made therein not false or
misleading;
(b) We have not represented (i) that you will earn, can earn, or are
likely to earn a gross or net profit, (ii) that we have knowledge of the
relevant market, or (iii) that the market demand will enable you to earn a
profit from the Franchise;
(c) You have read and understood this Agreement and the disclosure
document entitled "Papa John's Franchise Offering Circular" (the "Offering
Circular") required by the Federal Trade Commission or the state in which the
Development Area will be located. You understand that we make no representation
or warranty regarding your relevant market or the profitability of business
operations under the System and that no representations have been made by us, or
by any of our Affiliates or our or their officers, directors, shareholders,
employees or agents, that are contrary to or inconsistent with the terms of this
Agreement or with the statements made in the Offering Circular that accompanied
a copy of this Agreement;
(d) You accept the terms, conditions and covenants contained in this
Agreement as being reasonable and necessary to maintain our standards of
quality, service and uniformity and in order to protect and preserve the
goodwill of the Marks. You acknowledge that other franchisees of ours have been
or will be granted franchises at different times and in different situations.
You further acknowledge that the provisions of the franchise agreements pursuant
to which such franchises were granted may vary materially from those contained
in this Agreement and that your obligation arising hereunder may differ
substantially from other franchisees; and
(e) You recognize that the System may evolve and change over time and
that the Franchise involves an investment of substantial risk and its success is
dependent primarily upon your business acumen and efforts and other factors
beyond our control. You have conducted an independent investigation of the
Franchise and have had ample time and opportunity to consult with independent
professional advisors (lawyers, accountants, etc.), and have not received or
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relied upon any express or implied guarantee as to potential volumes, revenues,
profits or success of the business venture contemplated by the Franchise.
16. Miscellaneous.
(a) Severability. You agree to be bound to the maximum extent
permitted by law that is subsumed within the terms of any provision hereof, as
though it were separately articulated in and made a part of this Agreement, that
may result from the striking of any provision hereof by a court, or that a court
holds to be unenforceable in a final decision to which we are a party, or that
may result from reducing the scope of any provision to the extent required to
comply with a court order or with any state or federal law, whether currently in
effect or subsequently enacted.
(b) Construction. All references herein to the masculine, neuter, or
singular shall be construed to include the masculine, feminine, neuter, or
plural, as the case may require. All acknowledgements, warranties,
representations, covenants, agreements, and obligations herein made or
undertaken by you shall be deemed jointly and severally undertaken by all those
executing this Agreement as you. During any period in which any of the covenants
in Section 7 is being breached or violated, including any period in which either
of the parties seeks judicial enforcement, interpretation or modification of any
such covenant, and all appeals thereof, the restricted period set forth therein
shall toll and be suspended.
(c) Entire Agreement. This Agreement, the documents incorporated
herein by reference and the Exhibit attached hereto, constitute the entire
agreement between the parties, and all prior understandings or agreements
concerning the subject matter hereof are canceled and superseded by this
Agreement. The Exhibit to this Agreement is incorporated herein by reference and
made a part hereof as if set out in full herein.
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(d) Affiliate. As used in this Agreement, the term "Affiliate" shall
mean any person or entity that is owned or controlled by us or which owns or
controls us or is under common control with us, either directly or through one
or more intermediaries.
(e) Amendments. Except for those permitted to be made unilaterally
by us, no supplement, amendment or variation of the terms of this Agreement
shall be valid unless made in writing and signed by the parties hereto.
(f) Waivers. No failure by us to exercise any right given to us
hereunder, or to insist upon strict compliance by you with any obligation,
agreement or undertaking hereunder, and no custom or practice of the parties at
variance with the terms hereof shall constitute a waiver of our right to demand
full and exact compliance by you with the terms hereof. Waiver by us of any
particular default by you shall not affect or impair our rights with respect to
any subsequent default of the same or of a different nature, nor shall any delay
or omission of us to exercise any right arising from such default affect or
impair our rights as to such default or any subsequent default.
(g) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(h) Headings. The headings used in this Agreement are for
convenience only, and the paragraphs shall be interpreted as if such headings
were omitted.
(i) Time of Essence. You agree and acknowledge that time is of the
essence with regard to your obligations hereunder, and that all of your
obligations are material to us and this Agreement.
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IN WITNESS WHEREOF, the parties have signed this Development Agreement as
of the date written above.
PAPA JOHN'S INTERNATIONAL, INC.
By:
---------------------------------
Richard J. Emmett, Vice President
PJ AMERICA, INC.
By:
---------------------------------
Douglas S. Stephens, President
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PAPA JOHN'S
DEVELOPMENT AGREEMENT
EXHIBIT A
DEVELOPMENT AREA
----------------
June __, 1997
The areas encompassed on the attached maps entitled "PJ AMERICA, PART 1 of
5," "PJ AMERICA, PART 2 of 5," "PJ AMERICA, PART 3 of 5," "PJ AMERICA, PART 4 of
5" and "PJ AMERICA, PART 5 of 5" shall constitute the "Development Area," as
defined in the Papa John's Development Agreement of even date herewith, by and
between PAPA JOHN'S INTERNATIONAL, INC. and PJ AMERICA, INC. (except for
locations expressly excluded from the Development Area under Section 1 of the
Development Agreement).
NUMBER OF RESTAURANTS TO BE DEVELOPED 1
PAPA JOHN'S INTERNATIONAL, INC.
By:
---------------------------------
Richard J. Emmett, Vice President
PJ AMERICA, INC.
By:
---------------------------------
Douglas S. Stephens, President
<PAGE>
Exhibit 10.31
PUERTO RICO
PAPA JOHN'S
COMMISSARY LICENSE AGREEMENT
Licensee: Pizza Caribe, Inc.
Address: 9109 Parkway East
Birmingham, Alabama 35206
<PAGE>
TABLE OF CONTENTS
-----------------
Page
1. Technology Defined.............................................. 2
2. Grant of License................................................ 2
3. Appointment as Supplier......................................... 2
4. Exclusivity of Appointment...................................... 2
5. Additional Territory............................................ 3
6. Trademark License............................................... 3
7. Fees; Records and Reports....................................... 3
8. Licensee's General Obligations.................................. 5
9. Quality and Operational Standards; Compliance with Laws......... 7
10. Operational Default............................................. 8
11. Interruption of Service......................................... 10
12. General Obligations and Duties of PJI........................... 10
13. Margin Controls................................................. 11
14. Intellectual Property........................................... 11
15. Purchase and Sale Terms......................................... 12
16. Indemnification; Insurance...................................... 13
17. Confidentiality................................................. 15
18. Term; Renewal; Termination...................................... 15
19. Default and Termination......................................... 16
(i)
<PAGE>
20. Rights and Obligations upon Termination or Expiration........... 17
21. PJI Purchase Option............................................. 18
22. Reasonableness of Scope and Duration............................ 19
23. Enforceability.................................................. 20
24. Assignment...................................................... 20
25. Notices......................................................... 20
26. Independent Contractor.......................................... 21
27. Enforcement..................................................... 21
28. Miscellaneous................................................... 23
(ii)
<PAGE>
COMMISSARY LICENSE AGREEMENT
----------------------------
THIS COMMISSARY LICENSE AGREEMENT ("Agreement") is made and entered into as
of the ______ day of ____________, 1998, by and between PAPA JOHN'S
INTERNATIONAL, INC., a corporation organized and existing under the laws of the
State of Delaware, United States of America ("PJI"), and PIZZA CARIBE, INC., a
corporation formed under the laws of the Commonwealth of Puerto Rico
("Licensee").
RECITALS:
--------
A. PJI and its Affiliates (defined below) have developed a unique system
for operating retail restaurants devoted primarily to carry-out and delivery of
pizza and other food items.
B. PJI's restaurants are characterized by a unique system (the "System")
which includes special recipes and menu items and is identified by certain
service marks, trade names and trademarks, including but not limited to, "Papa
John's," "Papa John's Pizza" and "Better Ingredients. Better Pizza." as well as
certain other trademarks, service marks, slogans, logos and emblems which have
been and which may be designated for use in connection with the System from time
to time (the "Marks").
C. PJI owns and uses certain confidential, proprietary information for
production of pizza dough and for obtaining pre-measured spice packages and
other proprietary products, which proprietary products are specially prepared
for the exclusive use of restaurants in the System and contain trade secrets of
PJI. PJI considers its pizza dough and other proprietary products to be
integral to the System.
D. PJI has established business relationships with suppliers of various
products used in the operation of Papa John's restaurants, which relationships
PJI believes allow it to effect cost savings in the supply of such products to
Papa John's restaurants.
E. Licensee desires to obtain a license to use PJI's confidential,
proprietary information for the purposes of producing and distributing pizza
dough and acquiring and distributing other proprietary products and commodities
to restaurants licensed to use PJI's System and Marks in Puerto Rico and PJI
desires to grant such license to Licensee upon the terms and conditions of this
Agreement in order to ensure supply of its proprietary products to Papa John's
restaurants operating in Puerto Rico.
NOW, THEREFORE, PJI and Licensee hereby agree as follows:
<PAGE>
1. Technology Defined. As used in this Agreement, "Technology" shall
mean and include all formulas, recipes, methods or techniques of preparation and
production of fresh dough and specifications for, and formulas, recipes, methods
or techniques for preparation of, other proprietary products and all other
technology and related confidential information owned and used by PJI in
connection with the production, acquisition or distribution of the proprietary
products of PJI and disclosed to Licensee for the purposes contemplated in this
Agreement.
2. Grant of License. Subject to the terms and conditions of this
Agreement, PJI hereby grants to Licensee, for the "Term" (as defined in Section
18), a license (the "License") to do any of the following within the territory
specified on Exhibit A attached hereto (the "Territory"):
(a) produce pizza dough, obtain pre-measured spice packages and
obtain and/or prepare other PJI proprietary products as designated from time to
time by PJI, in accordance with specifications provided by PJI and using or
incorporating the Technology (pizza dough and all other proprietary products of
PJI obtained or prepared using or incorporating the Technology are hereinafter
referred to as "Licensed Products"); and
(b) sell and distribute Licensed Products to restaurants licensed
to use the System and the Marks in the Territory (individually a "Restaurant"
and collectively the "Restaurants"), including to sell and distribute Licensed
Products to, or use Licensed Products in, Restaurants owned and operated by
Licensee or any Affiliate of Licensee. Provided Licensee remains in compliance
with the quality standards set forth in Section 9, Licensee shall be an approved
supplier of Licensed Products to the Restaurants and to other restaurants
licensed to use the Marks and the System in the "Carribean" (as defined on
Exhibit B attached hereto) during the Term.
3. Appointment as Supplier. During the Term, Licensee shall have the
right to produce, sell and distribute within the Territory all other goods and
products (in addition to Licensed Products) designated or approved by PJI for
use in Restaurants in the Territory ("Goods"), provided that, except as
expressly approved by PJI, Goods does not include computer systems and software,
uniforms or advertising and promotional materials. Provided that Licensee at
all times strictly adheres to the specifications and quality standards for Goods
as communicated to Licensee by PJI from time to time and sells and distributes
only Goods approved by PJI, including Goods obtained from a source approved by
PJI, Licensee shall be an approved supplier of Goods to the Restaurants and to
other restaurants licensed to use the Marks and the System in the Carribean
during the Term. Nothing herein shall prohibit Licensee from leasing or
subleasing space in its facilities provided that no part of such facilities are
used for storage, sale or distribution of any products that are directly
competitive with the Licensed Products.
4. Exclusivity of Appointment. Subject to the provisions of Sections
10.(b), 11 and 20: (a) neither PJI nor any of its Affiliates will, during the
Term, (i) produce, sell or distribute Licensed Products within the Territory, or
(ii) license any other party to produce, sell or distribute
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<PAGE>
Licensed Products within the Territory; and (b) Licensee shall be the only
approved supplier of Licensed Products to Restaurants in the Territory.
5. Additional Territory. Provided that Licensee is in compliance with
the quality standards set forth in Section 9 and remains an approved supplier of
Licensed Products and Goods to Restaurants in the Territory, and subject to the
conditions and limitations set forth herein, Licensee will be an approved
supplier of Licensed Products and Goods to Papa John's Pizza restaurants
developed in the Carribean. Designation of Licensee as an approved supplier of
Licensed Products and Goods in such additional territory shall be subject to the
following conditions and limitations: (a) such designation shall be non-
exclusive unless otherwise agreed by PJI in writing; and (b) PJI retains the
right to grant exclusive licenses to other parties to distribute Licensed
Products in specified territories in the Carribean if necessitated by or
essential to PJI's arrangements for development of Papa John's Pizza restaurants
in such territories.
6. Trademark License. During the Term, Licensee shall have the right and
license to use the Marks in connection with the sale and distribution of
Licensed Products and Goods in the Territory, provided that such Licensed
Products and Goods are produced, sold and distributed in accordance with the
terms and conditions of this Agreement, and further provided that all use of the
Marks is in accordance with policies established by PJI and communicated to
Licensee from time to time. PJI shall be obligated to defend the Marks.
7. Fees; Records and Reports.
(a) Initial License Fee. Licensee shall pay to PJI an initial license
fee (the "Initial License Fee") of $150,000.00 prior to commencing operations.
The Initial License Fee is fully earned when paid and is non-refundable.
(b) Royalty-Free License. Except as provided in Section 7.(c) and
10.(b)(iii), the License shall be royalty-free and without any other costs or
fee to Licensee.
(c) Subsidization Fee. From time to time during the Term, PJI will
provide training, supervision and other services to Licensee (as described in
Section 12 and elsewhere in this Agreement) generally at no cost to Licensee.
Licensee understands and acknowledges that PJI's favorable business and
contractual relationships with suppliers of various Goods used by Restaurants in
the System are expected to generate subsidies that enable PJI to recover its
costs incurred in the provision of services to Licensee and thereby minimize the
royalty fees and other charges to restaurants owned and operated by Licensee.
Consequently, if circumstances or conditions exist that prevent PJI, to any
extent, from utilizing its business and contractual relationships to subsidize
the services provided to Licensee hereunder, PJI may, upon 90 days prior notice
to Licensee, charge Licensee a quarterly License Fee based on the following
schedule (the "Licensee Fee Schedule"), subject to Sections 7.(d) and
10.(b)(iii):
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<TABLE>
<CAPTION>
Number of
Restaurants License Fee
Served Per Quarter
------ -----------
<S> <C>
1 - 25 $1,500
26 - 50 $2,500
51 - 100 $3,000
101 or more $3,500
</TABLE>
The License Fee shall be paid by Licensee not later than the last business day
of the month following the close of the quarter for which the License Fee is
due.
(d) Adjustments to License Fee Schedule. Commencing on the first
anniversary date of this Agreement, PJI may increase the License Fee set forth
for each level in the License Fee Schedule by an amount not to exceed 5 1/2% of
the License Fees then in effect for each level in the License Fee Schedule. PJI
shall notify Licensee of such an adjustment to the License Fee Schedule at least
60 days before the adjustment is to take effect, specifying in the notice the
effective date of the adjustment. PJI shall not adjust the License Fee Schedule
pursuant to this Section 7.(d) more than once in any 12-month period during the
Term.
(e) Reports. Licensee shall furnish to PJI (i) accurate and complete
quarterly reports listing the "Net Selling Price" (as defined herein) of all
Licensed Products sold during the previous quarter (including all Licensed
Products sold to or provided for use in Restaurants owned and operated by
Licensee or any Affiliate of Licensee and any transfer prices assigned thereto),
setting forth the number of Licensed Products sold and under which of the Marks,
if any, such Licensed Products were sold; and (ii) such other reasonable reports
as PJI may require relating to sales, costs, expenses and net profit or loss of
the Commissary operation, including information of any problems pertaining to
sales of the Licensed Products by Licensee, such as service problems, pricing
problems, shipping problems and all other material factors that may affect sales
of the Licensed Products in the Territory. The report(s) will be due at PJI's
offices in Louisville, Kentucky, U.S.A., on or before the 45th day following the
close of each quarter. For purposes of this Agreement, a "quarter" shall mean
each 13-week period corresponding with Licensee's periodic and quarterly
accounting and reporting periods and the term "Net Selling Price" shall mean and
include the total selling price of all Licensed Products sold by Licensee, less
(A) sales, use or service taxes, (B) customer discounts, refunds and
adjustments, and (C) any freight, insurance or like charges collected by
Licensee from its customers with respect to the Licensed Products sold.
(f) Records. Licensee shall maintain such records relating to its
sale, promotion and distribution of the Licensed Products as are necessary in
order for Licensee to submit to PJI the reports referenced in Section 7.(e). PJI
shall have access to all records and other documentation of Licensee relating to
the Licensed Products (and Licensee's promotion, sale and distribution thereof),
during normal business hours upon at least 20 days' prior notice to Licensee.
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<PAGE>
8. Licensee's General Obligations. Licensee shall perform the following
duties and obligations during the Term of this Agreement, at no additional cost
or expense to PJI:
(a) Best Efforts. Licensee shall exert its best efforts to sell and
distribute Licensed Products to all Restaurants located within the Territory,
and shall offer Licensed Products to all Restaurants in the Territory. Licensee
shall maintain an adequate customer service force dedicated to the sale and
distribution of Licensed Products and Goods to Restaurants in the Territory.
Licensee shall promptly respond to all inquiries from Restaurants (including
complaints), process all orders, and effect all shipments of Licensed Products.
Licensee shall not withhold, suspend or otherwise interrupt or discontinue
distribution of Licensed Products or Goods to any Restaurant in the Territory,
for any reason, without PJI's consent.
(b) Facilities. Licensee shall maintain a clean and safe place of
business for production, storage and distribution of Licensed Products and Goods
(the "Premises") and modern and efficient equipment, facilities and business
organization for carrying on the business of production, sale and distribution
of Licensed Products and Goods in order to actively and effectively solicit and
fill orders for the sale of Licensed Products and Goods to all Restaurants in
the Territory. The business to be carried on by Licensee pursuant to this
Agreement is referred to hereinafter as the "Commissary." If Licensee leases the
Premises, Licensee shall use its best efforts to include in the lease for the
Premises, or in an addendum thereto, a provision that Licensee may assign the
lease to PJI or an Affiliate of PJI without the consent of the landlord of the
Premises.
(c) Stock. Licensee shall maintain a level of inventory of Licensed
Products and Goods reasonably sufficient to meet the requirements of the
Restaurants operating in the Territory to obtain an adequate supply of Licensed
Products and Goods for use in the normal course of their business and
operations. Licensee shall monitor and record all stock codes, of both incoming
and outgoing stock, to ensure Licensee's capabilities to effect accurate and
timely recalls and withdrawals.
(d) Personnel.
(i) Licensee shall maintain an adequate staff of production,
distribution and customer support personnel to provide high quality and timely
service to all Restaurants in the Territory.
(ii) Licensee shall designate an individual to serve as the
"Commissary Manager" of the Commissary. The Commissary Manager shall be a
person approved by PJI who has successfully completed PJI's initial training
requirements and who shall participate in and successfully complete all
additional training as PJI may reasonably designate. The Commissary Manager
shall agree, in a form reasonably satisfactory to PJI, to be bound by the
confidentiality provisions of Section 17 hereof. The Commissary Manager shall
personally devote his full business time and best efforts to the supervision and
conduct of the business of the Commissary in order to ensure compliance with
this Agreement and maintenance of PJI's standards of quality.
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<PAGE>
Management responsibility shall include, without limitation: presence of the
Commissary Manager or an assistant manager during all business hours;
maintenance of the highest standards of product quality and consistency;
maintenance of the Commissary to highest standards of sanitation and safety; and
supervision of employees to ensure that the highest standard of service is
maintained and to ensure that employees deal with customers, suppliers, PJI and
all other persons in a courteous and respectful manner.
(e) No Competing Products. In order to protect and maintain the image
and goodwill of PJI's System and ensure the quality and consistency of the
Licensed Products, Licensee shall refrain from engaging, directly or indirectly,
in the promotion, advertising, sale, or distribution in the Territory of any
goods substantially similar to the Licensed Products without the prior consent
of PJI, whether for Licensee's account or for the account of any other person or
entity.
(f) Conduct of Sales and Distribution Activity. Licensee agrees that
Licensee and its agents, representatives, officers and employees, shall conduct
all sales and distribution activity in connection with the Commissary in a
lawful manner, consistent with the high standards of fair trade, fair
competition and business ethics, and with due regard for the best interests of
PJI. At all times and under all circumstances, Licensee and its agents,
representatives, officers and employees shall treat all customers and other
persons, including PJI's agents, officers, and employees with the utmost respect
and courtesy, and shall fully cooperate with PJI in all aspects of operation of
the Commissary pursuant to this Agreement.
(g) Expenses. Licensee shall be solely responsible for all of the
costs and expenses incurred by it in connection with its activities under this
Agreement, including, but not limited to, those associated with producing,
selling and distributing Licensed Products and Goods, invoicing and collecting;
and Licensee shall be solely responsible and accountable for the activities and
expenses of its officers, employees, agents and representatives.
(h) Qualification To Do Business. Licensee shall, at its expense,
promptly make such filings and registrations, and take such additional actions
(including without limitation, obtaining such licenses and permits), as may be
required to qualify Licensee to transact business under all applicable domestic,
foreign, federal, state and local statutes, laws, rules and regulations, in
order to perform its obligations under this Agreement (including, if necessary,
all actions required to export Licensed Products and Goods from the United
States and import Licensed Products and Goods into the Territory). PJI shall
not be obligated to perform its obligations contained herein until such time as
Licensee shall have duly obtained all such registrations, licenses and permits.
(i) Sales to Licensees Only. Licensee shall not sell, distribute or
otherwise provide or offer to any party that is not licensed by PJI to operate
one or more Restaurants under PJI's System: (i) Licensed Products; (ii) any
Goods bearing or closely associated with any of the Marks; or (iii) any Goods
(excluding consumer items typically sold in finished form through
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<PAGE>
varied retail outlets, such as soft drinks and other beverages) designated by
PJI as integral to the System.
9. Quality and Operational Standards; Compliance with Laws.
(a) Adherence to Manuals; Other Specifications and Standards. Licensee
shall adopt and use the formulas, methods, procedures, policies, recipes and
other specifications contained in the Manuals (as defined in Section 12).(a)),
written policy and procedure statements and other written notices issued to
Licensee from time to time by PJI with respect to production, sale and
distribution of Licensed Products and operation of the Commissary. All raw
materials used by Licensee in production of Licensed Products shall be obtained
from a source of supply approved by PJI (which approval shall not be
unreasonably withheld) and shall meet PJI's reasonable specifications and
quality standards.
(b) Integrity and Quality of Licensed Products. Licensed Products
produced and distributed by Licensee pursuant to this Agreement shall be of
high quality and shall be in strict conformance with the specifications and
standards for Products contained in the Manuals or as otherwise communicated to
Licensee by PJI from time to time. Before selling, distributing or using any
Licensed Products, Licensee shall furnish to PJI for its prior approval, free of
cost, samples of each Licensed Product in reasonable quantities, its cartons,
containers and packaging and wrapping material, the quality and style of which
shall be subject to PJI's reasonable approval. From time to time during the
Term, Licensee shall furnish to PJI, upon PJI's request and free of cost to PJI,
random samples of each Licensed Product being produced, sold or distributed by
Licensee, together with any cartons, containers and packaging and wrapping
material used in connection therewith. If Licensee desires to obtain raw
materials from a source of supply not previously approved by PJI, Licensee shall
furnish to PJI for its prior approval, free of cost, samples of such raw
materials in reasonable quantities, its cartons, containers and packaging and
wrapping material, the quality and style of which shall be subject to PJI's
reasonable approval. Such raw materials shall be approved for use in production
of Licensed Products only upon Licensee's receipt of written approval from PJI.
(c) Integrity and Quality of Goods. Licensee shall distribute to
Restaurants in the Territory only those Goods designated by PJI and approved by
PJI as meeting PJI's quality standards. If Licensee desires to produce, sell
or distribute any Goods not previously designated and approved by PJI or to
obtain designated Goods or raw materials from a source of supply not previously
approved by PJI, Licensee shall furnish to PJI for its prior approval, free of
cost, samples of such Goods in reasonable quantities, its cartons, containers
and packaging and wrapping material, the quality and style of which shall be
subject to PJI's reasonable approval. Such Goods shall be approved for
distribution to Restaurants only upon Licensee's receipt of written approval
from PJI.
(d) Operational Standards. To ensure maintenance of the highest
quality in the Licensed Products and to protect the goodwill and image of the
System, Licensee shall at all times operate the Commissary in conformity with
the written operational standards communicated
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<PAGE>
to Licensee by PJI from time to time. Such operational standards may include,
without limitation, standards relating to: housekeeping and sanitation;
maintenance of equipment; worker safety; storage of perishables; inventory
management; equipment purchasing; dough production specifications; and
distribution and delivery policies and procedures. Licensee shall promptly
comply with all written operational directions, instructions and recommendations
communicated to Licensee by PJI from time to time.
(e) Compliance with Laws. Manufacture, sale and distribution of
Licensed Products and all other operation of the Commissary by Licensee shall be
in conformity with all applicable laws and regulations and shall not reflect
adversely on PJI, the Intellectual Property (as defined in Section 14), the
System or any goodwill associated therewith. Without limiting the generality of
the foregoing, Licensee shall ensure that all Licensed Products and all Goods
sold by Licensee comply with all applicable labeling and packaging laws and
regulations, including, without limitation, any required translation into local
language.
(f) Inspections. Prior to commencement of operations at the
Commissary, Licensee shall notify PJI that Licensee is prepared to commence
operations. PJI will conduct a pre-opening inspection of the Commissary
commencing within 5 days of such notice. Licensee shall not commence operation
of the Commissary until PJI has given its approval. Thereafter, agents,
officers or employees of PJI may make inspections of the Commissary to ensure
compliance with all required standards, specifications and procedures. Such
inspections will be made from time to time at intervals deemed necessary or
appropriate by PJI. The PJI inspector shall be allowed to inspect the
conditions and operation of the Commissary and all areas of the Premises at any
time during normal business hours. Such inspections may include, without
limitation: (i) reviewing sales and order forms; (ii) observing and consulting
with the Commissary Manager and other managers and employees; (iii) observing
production of Licensed Products; (iv) observing storage and distribution
operations; (v) taking samples of Licensed Products, Licensed Products in
process and raw materials intended for use in Licensed Products; and (vi)
conducting any type of audit or review necessary or appropriate to evaluate
Licensee's compliance with all required standards, specifications and
procedures. PJI may, from time to time, make suggestions and give reasonable
mandatory instructions with respect to production, storage or distribution of
Licensed Products and operation of the Commissary.
10. Operational Default.
(a) Notice and Opportunity to Cure. If at any time during the Term,
as a result of any inspection by PJI, any analysis of samples of Licensed
Products or any other information coming to the attention of PJI, including
without limitation, complaints from Restaurants being served by the Commissary,
PJI determines that the Licensed Products or any Goods being supplied to
Restaurants fail to conform to the quality standards of PJI as required under
this Agreement, or that Licensee's operation of the Commissary is in any manner
deficient to serve the needs for Licensed Products of any or all of the
Restaurants in the Territory as required under this Agreement, PJI may notify
Licensee of such default ("Operational Default") setting forth in reasonable
detail the nature of the default and the steps Licensee must take to
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<PAGE>
remedy such default and bring its operation into conformity with this Agreement,
and the time period determined by PJI within which cure must be effected (an
"Operational Default Notice"). Except as otherwise provided in this
Section 10.(a), the cure period shall not be less than 30 days. If cure cannot
reasonably be effected within the specified cure period, Licensee shall be
deemed to be in compliance with its obligations hereunder if Licensee commences
remedial action within the specified period and diligently pursues steps or
actions necessary or appropriate to effect cure of the Operational Default
specified in the Operational Default Notice as soon as reasonably possible. In
the case of any Operational Default which, in PJI's judgment, poses a threat or
danger to the public health or safety, an imminent hazard to the health or
safety of Commissary personnel, or other threat or danger of immediate and
substantial harm to PJI's System and the goodwill associated therewith, PJI may
require in the Operational Default Notice that Licensee effect the required
remedial measures immediately or stop distributing Licensed Products or other
Goods affected by the Operational Default until such Operational Default has
been remedied.
(b) Remedies. If, after the cure period, if any, set forth in the
Operational Default Notice, PJI determines that Licensee has not satisfactorily
cured the subject Operational Default, PJI may, without terminating this
Agreement, invoke any or all of the following remedies:
(i) PJI may suspend the License in the Territory or any portion
of the Territory and, without breaching Section 4 of this Agreement, designate
and license an alternative supplier of Licensed Products and Goods to
Restaurants in the Territory or a portion of the Territory, which alternative
supplier may be PJI or an Affiliate of PJI, or an unrelated party.
(ii) PJI may designate and appoint one or more operators or
managers of PJI's choosing to serve as the Commissary Manager and/or managers of
the Commissary for Licensee's account. In such event, Licensee shall pay all
expenses incurred by such PJI-appointed personnel, including without limitation,
all costs of travel, lodging, meals and wages.
(iii) PJI may assess Licensee a fine of $1,000 per month during
which an operational default continues after any applicable cure period. Any
such fine shall be calculated pro rata on a daily basis for partial months.
Licensee shall pay the amount of fine monthly on or before the last business day
of the next succeeding month.
(c) Restoration of License and Territory. If Licensee demonstrates, to
PJI's reasonable satisfaction, that Licensee has cured all defaults and restored
its conformity to its obligations under this Agreement, PJI shall restore the
License hereunder; provided, that if such restoration occurs after an
alternative supplier has been designated pursuant to Section 10.(b)(i) and such
alternative supplier has commenced to supply Licensed Products to Restaurants in
the Territory, the License may, in PJI's discretion, be made non-exclusive and
PJI shall not be required to observe the provisions of Section 4 for such period
of time and/or for such portion of the Territory (including the entire
Territory) as determined by PJI.
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<PAGE>
(d) Remedies Not Exclusive. The remedies set forth in this Section 10
are independent of and in addition to, and not exclusive of, PJI's right to
terminate this Agreement pursuant to the provisions of Section 19.(a)(v), and
any other remedies available to PJI under this Agreement or applicable law.
11. Interruption of Service. If Licensee is, for any period of time,
unable to supply Licensed Products or Goods to Restaurants in the Territory as a
result of circumstances or conditions beyond the reasonable control of Licensee,
such as force majeure, fire, flood, civil disturbance, strike or governmental
action, or inability to obtain raw materials or Goods, PJI may, without breach
of Section 4, designate an alternative supplier of Licensed Products and Goods
to any or all Restaurants in the Territory or any portion of the Territory as
long as such interruption of service by Licensee continues. Such alternative
supplier may be PJI or an Affiliate of PJI, or an unrelated party. As soon as
reasonably practical after Licensee has restored full service to all Restaurants
in the Territory, PJI shall fully restore the rights and license of Licensee
hereunder.
12. General Obligations and Duties of PJI. During the Term, PJI agrees to
provide the following:
(a) Manuals; Specifications. PJI will license and deliver to Licensee
one or more manuals that contain: (i) the mandatory and suggested
specifications, standards and operating procedures with respect to production,
sale and distribution of Licensed Products and Goods; (ii) other information
relative to Licensee's obligations hereunder and the operation of the Commissary
(the "Manuals"). The Manuals shall at all times remain the property of PJI and
shall constitute part of the Technology and Confidential Information subject to
the provisions of Sections 14 and 17 of this Agreement. PJI may, from time to
time, revise the contents of the Manuals. To the extent deemed necessary or
appropriate by PJI, PJI will provide Licensee with policy and procedure
statements or other written notification of specifications, standards and
procedures.
(b) Suppliers. PJI will provide to Licensee, to the extent identified
or designated by PJI, the names and addresses of designated and approved
suppliers of (i) raw materials and ingredients necessary for production or
preparation of the Licensed Products and Goods, (ii) Licensed Products not
produced by Licensee, and (iii) Goods not produced by Licensee. PJI will assist
Licensee in sourcing raw materials, Licensed Products and Goods if no previously
approved suppliers have been identified or designated by PJI. PJI will use its
reasonable good faith efforts to assist Licensee in obtaining raw materials and
ingredients at prices equivalent to those paid by PJI (or its Affiliate) in
operating its commissaries.
(c) Improvements; Modifications. PJI will notify Licensee, on a
timely basis, of all present and future Intellectual Property used by PJI in
connection with the Licensed Products and any improvements or enhancements in
the Licensed Products or the methods or techniques of their production.
(d) Training.
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(i) PJI will provide to Licensee an initial training program for
the Commissary Manager, one or more approved managers, and such other persons as
PJI may reasonably designate. The initial training program may be conducted at
PJI's facilities in Louisville, Kentucky USA or other PJI facility.
(ii) Prior to the opening of the Commissary, one or more PJI
trainers will visit the Commissary site to provide additional training and
operating assistance as PJI considers necessary or appropriate to ensure
operation of the Commissary in accordance with PJI's standards, specifications
and policies, provided, that the schedule of such visit, as well as the number
of PJI trainers, shall be subject to the mutual agreement of the parties,
subject to PJI's standard training policies and procedures as adopted by PJI
from time to time.
(iii) PJI will provide such other training for Licensee's
employees at the locations and for such periods as PJI may reasonably designate
or approve.
(iv) In connection with all training, Licensee shall be
responsible for all expenses incurred by Licensee personnel, including without
limitation, all costs of travel, lodging, meals and wages.
(e) General Supervision. PJI will provide periodic inspections and
evaluations of Licensee's operation of the Commissary and communicate to
Licensee information relating to the operation of the Commissary to the extent
deemed necessary or appropriate by PJI.
13. Margin Controls. Licensee acknowledges and agrees with PJI that the
success of PJI's System and, consequently, the mutual benefits and essential
purpose sought to be achieved by this Agreement, depend upon the ability of the
Restaurants to control costs and compete successfully by offering their food
products at competitive retail prices. Therefore, if Licensee sells any
Licensed Products or Goods to any Restaurant(s) not owned and operated by
Licensee or its Affiliates, Licensee shall establish a pricing scheme for
Licensed Products and Goods reasonably calculated to achieve a maximum three
percent (3%) "Net Profit" (as defined below) on sales of Licensed Products and
Goods by the Commissary. As used in this Agreement, "Net Profit" shall mean the
net after-tax profit on operation of the Commissary as a percentage of sales by
the Commissary, provided, that (a) PJI shall have the right to review and
approve the amount and types of costs and expenses charged against revenues to
determine the Net Profit of the Commissary; (b) PJI shall not disapprove any
type or amount of cost or expense customarily charged or allocated to the
commissary operations of PJI's own subsidiaries or affiliates; and (c) PJI's
approval of any amount of cost or expense shall not be unreasonably withheld.
14. Intellectual Property.
(a) Non-Impairment of Rights. Licensee acknowledges PJI's exclusive
right, title and interest in and to the Marks and the Technology (collectively,
the "Intellectual Property"). Licensee agrees that neither it nor any of its
officers, employees, agents or representatives shall
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do any acts or things contesting or in any way impairing or attempting to impair
any portion of PJI's right, title and interest in and to the Intellectual
Property. Licensee further acknowledges that it obtains no ownership interest in
the Intellectual Property by reason of this Agreement, and covenants that it
shall not in any manner represent that it possesses any ownership interest
therein. Licensee shall not make any direct or indirect use of any of the
Intellectual Property, or any part thereof, for any purpose whatsoever except in
connection with manufacture, sale and distribution of the Licensed Products and
operation of the Commissary as contemplated in this Agreement. In all sales
literature, advertising and other promotional materials or descriptive
materials regarding PJI or the Licensed Products used by Licensee in the
promotion or sale of Licensed Products, Licensee shall clearly identify PJI's
ownership of any of PJI's Intellectual Property used therein.
(b) Infringement; Litigation. Licensee shall notify PJI immediately
if it discovers or learns of any infringing use of the Intellectual Property or
if litigation involving the Intellectual Property is instituted or threatened
against Licensee or PJI. If PJI, in its sole discretion, undertakes the
defense or prosecution of any litigation relating to the Intellectual Property,
Licensee agrees to execute such documents and to render such assistance as may
reasonably be requested by PJI in conducting such defense or prosecution;
provided that PJI will reimburse to Licensee any of its out-of-pocket expenses
incurred in rendering such assistance. PJI will defend the Intellectual
Property.
15. Purchase and Sale Terms.
(a) Standard Terms. If Licensee purchases any raw materials, Goods or
other tangible goods from PJI or any Affiliate of PJI, Licensee shall pay for
such purchases by electronic funds transfer debit to Licensee's U.S. bank
account 10 business days after shipment. Except as specifically provided herein,
all purchases by Licensee from PJI or its Affiliates shall be subject to PJI's
(or its applicable Affiliate's) standard terms and conditions as may be in
effect from time to time and at prices established from time to time by PJI or
its applicable affiliate. As of the date hereof, PJI's (and its Affiliates')
pricing schedule is set at PJI's cost plus a 5% service fee. PJI and its
Affiliates reserve the right to adjust the pricing schedule from time to time.
PJI will notify Licensee of any adjustment to the pricing schedule. The
provisions hereof and the applicable standard terms and conditions shall control
all purchase and sale transactions, notwithstanding any inconsistent or contrary
term or condition in any purchase order of Licensee.
(b) Method of Payment; Schedule. Prior to commencing operations,
Licensee shall, if requested by PJI, establish a bank account that may be
accessed by check, via electronic funds transfer or such alternative methods as
PJI may designate ("Payment Methods"), and execute and deliver to PJI, PJI's
bank(s) and Licensee's bank, as necessary, all forms and documents that PJI may
request to permit PJI to debit Licensee's bank account by any of the Payment
Methods that PJI may designate. Licensee must comply with all procedures
specified by PJI from time to time, and/or take such reasonable actions as PJI
may request to assist in any of the Payment Methods. PJI may use the Payment
Methods to collect the amount of each quarter's License Fee, if any, and any
other amounts due to PJI or any of its Affiliates under this Agreement or
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otherwise. Payments for shipment of Goods will be debited on the 10th business
day after shipment. Licensee shall be solely responsible for and bear all
banking fees and other costs and charges associated with establishment or use of
the Payment Methods, which may be charged to Licensee by PJI. Licensee shall
notify PJI at least 20 days prior to closing or making any change to the account
against which such debits are to be made. If such account is closed or ceases
to be used, Licensee shall immediately provide all documents and information
necessary to permit PJI to debit the amounts due from an alternative account.
Licensee acknowledges that these requirements are only a method to facilitate
prompt and timely payment of amounts due and shall not affect any obligation or
liability for amounts owed. If for any reason Licensee's account cannot be
electronically debited, Licensee shall submit payments by check (certified or
cashier's check if requested by PJI) on or before the dates when due. Licensee
shall indemnify and hold PJI and its Affiliates harmless from and against all
damages, losses, costs and expenses resulting from any dishonored debit against
Licensee's account, regardless whether resulting from the act or omission of
Licensee or Licensee's bank; provided that Licensee shall not be obligated to
indemnify PJI or its Affiliates for any dishonored debit caused by PJI's (or its
Affiliate's) negligence or mistake.
(c) Currency. All payments referenced in this Agreement as payable to
PJI are stated in the currency of the United States of America ("U.S. Dollars").
All payments due to PJI under this Agreement shall be made in U.S. Dollars.
Licensee shall be responsible for obtaining and maintaining any and all
necessary or appropriate governmental approvals or permits enabling Licensee to
make payments to PJI in U.S. Dollars. Licensee shall be solely responsible for
and bear all banking fees and other costs and charges associated with all
currency transactions necessary to comply with the provisions of this Agreement.
(d) Start-Up Discount. In consideration of the organizational costs
and other start-up costs to be incurred by Licensee in the development and ramp-
up of operations of the Commissary, Licensee shall receive a 50% discount on all
purchases from PJI or its Affiliates until Licensee has purchased goods
aggregating $300,000.00 at standard, non-discounted prices.
16. Indemnification; Insurance.
(a) Indemnification. During the Term and at all times thereafter,
Licensee shall indemnify PJI, its officers, directors, employees, agents and
assigns against, and hold all of them harmless from, (i) all liabilities,
obligations, losses, actual and consequential damages, judgments, claims,
deficiencies, penalties, fees, taxes and other charges incurred by any of them,
and (ii) all costs and expenses including reasonable attorneys' fees, which
arise out of or are in any way connected with any of the following:
(i) Licensee's breach of any of its obligations under this
Agreement;
(ii) Licensee's relationships with its employees, officers,
representatives, agents or customers;
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(iii) Any failure by Licensee to comply with any law or
regulation relating to the manufacture, sale or distribution of the Licensed
Products within the Territory;
(iv) Claims or suits arising out of any alleged defects in the
Licensed Products sold by Licensee; or
(v) Licensee's operation of the Commissary.
(b) Insurance. Licensee shall obtain at its own expense, a policy or
policies of insurance from a recognized insurance carrier or carriers, with
coverages as specified below:
(i) fire, extended coverage, vandalism, malicious mischief, and
special extended peril insurance at no less than the actual replacement value of
the Premises and the contents and improvements of the Commissary;
(ii) workers compensation and other insurance required by law;
(iii) general commercial liability on an "occurrence" form,
covering all operations, providing insurance for bodily injury liability,
property damage liability and personal injury liability for the limits of
liability indicated below and including coverage for:
(A) premises and operations liability,
(B) products and completed operations liability,
(C) independent contractors protective liability, and
(D) blanket contractual liability insuring the obligations
assumed by Licensee under this Agreement; and
(iv) fire legal liability, with a minimum coverage limit of
$500,000, unless Licensee owns the Premises or has a cross-waiver of subrogation
with the landlord of the Premises.
Such policy or policies shall provide coverage of at least $1,000,000 per
occurrence (combined single limit for bodily injury and property damage),
$1,000,000 personal injury liability, $1,000,000 aggregate for products -
completed operations, and $2,000,000 general aggregate. Licensee shall also
maintain an umbrella policy with a minimum of $1,000,000, which must expressly
provide coverage above the coverages listed above. PJI shall be named as an
additional insured on all such policies. Upon request, Licensee shall deliver
to PJI copies of such policies (or other reasonably acceptable proof of the
required coverages) and proof of payment of all required premiums. At any time
after expiration of the Initial Term, and from time to time throughout the
remainder of the Term, PJI may increase the required limits of any required
policy of insurance.
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17. Confidentiality. Licensee understands and agrees that PJI has
disclosed or will disclose to Licensee the Technology and certain other
confidential or proprietary information, trade secrets, knowledge and know-how
concerning the recipes, food products, advertising, marketing, designs, plans,
or methods of operation of PJI's System (collectively, the "Confidential
Information"). Except as necessary in connection with the performance of its
duties and obligations, and the exercise of its rights and privileges under this
Agreement, and as approved by PJI, Licensee shall not, during the Term or at
any time after the expiration or termination of this Agreement, regardless of
the cause of termination, directly or indirectly, use for Licensee's own benefit
or communicate or divulge to, or use for the benefit of any other person or
entity, any of the Confidential Information. Licensee shall disclose to its
directors, officers, employees, agents, representatives or suppliers only such
Confidential Information as is necessary to operate Licensee's business under
this Agreement and then only during the Term and only on the condition that such
persons are advised of the confidential nature of the Confidential Information
and Licensee takes all steps reasonably necessary or appropriate to ensure that
such persons agree to be bound by the confidentiality covenants herein to the
same extent as Licensee is bound thereby. Provided that Licensee has used
efforts equal to that employed by Licensee to protect its own confidential or
proprietary information, Licensee shall not be liable to PJI for money damages
if Licensee's officer or employee breaches such confidentiality. Any and all
information, knowledge, or know-how, including without limitation, drawings,
materials, equipment, marketing, recipes, and other data, that PJI designates as
Confidential Information shall be deemed Confidential Information for purposes
of this Agreement. Confidential Information does not include any information
that:
(a) at the time disclosed or obtained is in the public domain; or
(b) after being disclosed or obtained becomes part of the public
domain through no act, omission or fault of Licensee or its directors, officers,
employees, agents or representatives; or
(c) prior to disclosure was already in possession of Licensee, as
evidenced by written records kept in the ordinary course of business or by proof
of actual use by Licensee; or
(d) Licensee demonstrates was received by it from a third party after
the time it was disclosed and was not acquired, directly or indirectly, under
any obligation of confidence and as to which the third party had a bona fide
right to possess and disclose without breaching any duty, obligation or
restriction imposed by agreement, operation of law or otherwise.
18. Term; Renewal; Termination.
(a) Term; Renewal Term. The initial term of this Agreement shall
commence on the date of its execution and delivery and shall expire on the 10th
anniversary of such date, unless sooner terminated as provided in Section 19
(the "Initial Term"). This Agreement shall automatically be renewed for three
successive five-year periods ("Renewal Terms") at the end of the Initial Term
and each Renewal Term, unless this Agreement is terminated by either party
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pursuant to the provisions of this Agreement. When used in this Agreement,
"Term" shall mean the Initial Term together with any and all Renewal Terms.
(b) Renewal. To terminate Agreement at the end of the Initial Term or
any Renewal Term, Licensee shall deliver written notice of nonrenewal to PJI at
least 180 days prior to expiration of the Initial Term or applicable Renewal
Term.
19. Default and Termination. This Agreement shall terminate prior to the
expiration of the Term as follows:
(a) Termination by PJI for Cause. Notwithstanding the assessment or
payment of any fines or other amounts under Section 10, Licensee shall be in
default, and PJI may, at its option, terminate this Agreement and all rights
granted Licensee hereunder effective 30 days after the giving of notice by PJI
specifying in detail the event or circumstance constituting default if any of
the following events occur and remain uncured at the expiration of such 30-day
period (or, if not reasonably curable within 30 days, Licensee has not initiated
action to effect cure within such 30-day period and diligently pursued such
remedial actions as necessary to effect cure as soon as reasonably possible):
(i) Licensee ceases to operate or otherwise abandons its
business.
(ii) Licensee or any principal shareholder is convicted of a
felony or a crime involving moral turpitude or engages in any unethical business
conduct which, in the opinion of PJI, is reasonably likely to affect PJI
adversely, or the goodwill associated with the Licensed Products, the
Intellectual Property, PJI's System, the goodwill thereof or PJI's interest
therein.
(iii) Licensee purports to assign or transfer (in any manner,
whether by operation of law or otherwise) any rights or obligations under this
Agreement without PJI's prior consent, or if there is a change (in one or more
related transactions) in the ownership of a majority of the outstanding capital
stock or membership interests of Licensee without PJI's prior consent (which PJI
agrees not to unreasonably withhold), other than a transfer of shares of capital
stock or ownership interests of Licensee among Licensee's existing shareholders
or owners and their Affiliates.
(iv) Licensee becomes insolvent or makes a general assignment for
the benefit of its creditors, or if a petition in bankruptcy is filed by
Licensee or such a petition is filed against Licensee and not opposed by it, or
if Licensee is adjudicated a bankrupt, or if a court appoints a receiver or
other custodian (permanent or temporary) of Licensee or of all or substantially
all of its assets or property and not opposed by it, or if a proceeding for a
composition with creditors under any foreign, federal or state law is instituted
by or against Licensee, and not opposed by it.
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(v) Licensee fails to comply with any other material term of this
Agreement, and does not remedy such deficiency within 10 days regarding the
failure to pay any amount due PJI, or within 30 days for any other deficiency,
after the delivery of notice setting forth in reasonable detail the nature of
the deficiency and the steps Licensee must take to remedy such deficiency.
(vi) Substantially all of Licensee's assets and properties are
nationalized or otherwise appropriated by any governmental authority or
regulatory body.
(viii) Licensee and its Affiliates cease to own and operate any
Restaurants in the Territory pursuant to separate Restaurant License
Agreement(s) with PJI or an Affiliate of PJI.
(b) Upon Breach by PJI. Licensee shall be entitled to terminate this
Agreement in the event PJI fails to comply with any material term, condition or
provision of this Agreement, and does not remedy such deficiency within 30 days
after the delivery of notice setting forth in reasonable detail the nature of
the breach and the steps PJI must take to remedy such breach.
20. Rights and Obligations upon Termination or Expiration. Upon the
expiration or early termination of this Agreement, regardless of the reason of
such termination, except as otherwise set forth below, all rights and
obligations of Licensee hereunder shall cease and, Licensee shall have the
following rights and obligations:
(a) Discontinuance of Status. Licensee and its officers, agents,
employees and representatives shall cease acting as or holding itself out as a
distributor of Licensed Products in any manner.
(b) Return of Confidential Information. Upon expiration of termination
of this Agreement, Licensee shall return to PJI (or, at PJI's direction,
destroy) all Confidential Information, together with any copies thereof, and any
documents, records, items or products containing or embodying Confidential
Information, regardless of the medium of such document, record, item or product.
(c) Continuing Obligations and Rights; Disposal of Inventory. Licensee
shall remain obligated under: the covenants set forth in Section 14, Section 17
and this Section 20, which covenants shall survive the expiration or termination
of this Agreement, regardless of the reason for or circumstances of such
expiration or termination; and the covenants and agreements contained in Section
21, which shall survive termination or expiration of this Agreement for the
period set forth therein.
(d) Trademarks, Trade Names, Etc. In the event any logos, trademarks
or trade names of PJI are then being used by Licensee, Licensee shall
discontinue all such use, and shall not thereafter use in connection with any
business in which the Licensee or any other person
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or entity may thereafter be engaged, any logo, name, title or expression which
is similar to any logo, trademark or trade name, or part thereof, of PJI or
Licensor; except as otherwise provided in any Restaurant license agreement or
other agreement between Licensee and PJI which then remains in effect.
(e) Alternative Supplier. Immediately upon notice of termination of
this Agreement, or upon termination without notice, PJI may, without breach of
Section 4, designate and license an alternative supplier of Licensed Products to
any or all Restaurants in the Territory or any portion of the Territory. Such
alternative supplier may be PJI or an Affiliate of PJI, or an unrelated party.
(f) Payment of Amounts Due. Licensee shall promptly pay all sums owed
to PJI or any of PJI's Affiliates, and if this Agreement is terminated for any
reason other than as a result of a material breach of this Agreement by PJI,
such sums shall include all damages, costs and expenses, including reasonable
attorneys' fees, incurred by PJI or its Affiliate as a result of Licensee's
breach of this Agreement.
21. PJI Purchase Option.
(a) Grant of Option. For good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, Licensee and all the
shareholders or holders of ownership interests of Licensee hereby grant to PJI,
upon the terms and conditions set forth in this Section 21, the right and option
(the "Option") to purchase, at PJI's election, all or substantially all of the
assets of the Commissary.
(b) Term; Exercise. The Option shall become exercisable by PJI upon
the earlier of (i) termination or expiration of this Agreement or (ii) the fifth
anniversary of the date of this Agreement, and shall continue until the 16th day
after termination or expiration of this Agreement. In the event of termination
or expiration of this Agreement, the Option shall be exercisable by delivery of
notice (the "Exercise Notice") to Licensee within 15 days from the date of
termination of this Agreement or 150 days prior to expiration due to Licensee's
nonrenewal of this Agreement. Otherwise, the Option shall be exercisable by
delivery of the Exercise Notice at any time after the fifth anniversary of the
date of this Agreement and at least one year prior to the intended date of
closing of the transaction (the "Closing Date").
(c) Purchase Price. The purchase price for the assets to be acquired
by exercise of the Option (the "Purchase Price") shall be determined according
to the formula set forth on Exhibit C.
(d) Payment. The Purchase Price shall be paid in cash or other
immediately available funds.
(e) Assignment of Leases and Contracts. If PJI exercises the Option
and elects to purchase the assets of Licensee, PJI shall assume the obligations
of Licensee under, and
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Licensee shall, if requested by PJI, assign to PJI any interest that Licensee
has in, any lease for the Premises and in any other leases or contracts relating
to the operation of the Commissary; provided, that PJI agrees to use reasonable
efforts to effect termination of such lease(s) and contract(s) and enter into
new agreement(s). If PJI is unable to negotiate an acceptable lease or contract
in any such case, PJI will indemnify Licensee and hold it harmless from any
ongoing liability under such lease or contract from and after the Closing Date.
(f) Additional Provisions. The provisions of this Section 21 set forth
the basic terms and conditions of the Option and the purchase and sale
transaction to be effected as a result of exercise of the Option. The legal
obligations of the parties relating to any such purchase and sale transaction
shall be contained in a definitive agreement containing the basic terms and
conditions set forth in this Section 21 and other terms, conditions,
representations, warranties, covenants and indemnities customary to such
transactions (the "Definitive Agreement"). Without limiting the generality of
the foregoing, PJI shall be entitled to warranties of title to the assets or
ownership interests, as the case may be, free and clear of liens and
encumbrances (other than liens or security interests reasonably acceptable to
PJI). Notwithstanding the necessity of a Definitive Agreement as set forth
herein, the Option constitutes a binding obligation on the part of Licensee and
its shareholders or owners to sell the assets of the Commissary or the ownership
interests in Licensee to PJI for the Purchase Price upon exercise of the Option.
(g) Operation of Commissary. Between the date of the Exercise Notice
and the Closing Date, Licensee shall continue to operate the Commissary in the
ordinary and normal course of business and Licensee shall not, during such time
period: (i) increase or obligate itself to increase the salary or other
compensation of any employee of Licensee; or (ii) make or obligate itself to
make any capital expenditures, except in each case actions or obligation
undertaken in the ordinary course of business.
(h) Access to Commissary and Data. Between the date of the Exercise
Notice and the Closing Date, PJI and its agents, employees and representatives
shall have reasonable access to the Commissary and the books and records of
Licensee for the purpose of evaluating the financial and operational condition
of the Commissary and/or Licensee.
(i) Post-Sale Operations. After the Closing Date, PJI shall operate
the Commissary (or otherwise provide for supply of Licensed Products to
Restaurants in the Territory) on (i) the same basis required of Licensee under
Section 13, or (ii) such similar terms, conditions or basis on which PJI or its
Affiliate then operates its other U.S. commissaries.
22. Reasonableness of Scope and Duration. Licensee agrees that the
covenants and agreements contained herein are, taken as a whole, reasonable with
respect to the activities covered and their geographic scope and duration, and
Licensee shall not raise any issue of the reasonableness of the areas,
activities or duration of any such covenants in any proceeding to enforce any
such covenants.
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23 Enforceability. Licensee agrees that PJI may not be adequately
compensated by damages for a breach by Licensee of any of the covenants and
agreements contained in Sections 14, 17, or 21, and that PJI shall, in addition
to all other remedies, be entitled to injunctive relief and specific
performance. The covenants and agreements contained in this Agreement shall be
construed as separate covenants and agreements, and if any court shall finally
determine that the restraints provided for in any such covenants and agreements
are too broad as to the area, activity or time covered, said area, activity or
time covered may be reduced to whatever extent the court deems reasonable, and
such covenants and agreements shall be enforced as to such reduced area,
activity or time.
24 Assignment. PJI has entered into this Agreement in reliance on the
particular business skills, experience and qualifications of Licensee. This
Agreement, the License and Licensee's rights and obligations under it, are and
shall remain personal to Licensee. Any proposed transfer by Licensee or any of
Licensee's owners (regardless of the form of transfer) of this Agreement or any
interest in it, or any rights or obligations arising under it, or of any
material portion of Licensee's assets, or of any interest in Licensee without
the prior, express consent of PJI is prohibited and shall constitute a default
by Licensee under this Agreement. As used herein, the term "transfer" shall mean
any sale, assignment, gift, pledge, mortgage or any other encumbrance, transfer
by bankruptcy, transfer by judicial order, merger, consolidation, share
exchange, transfer by operation of law or otherwise, whether direct or indirect,
voluntary or involuntary. PJI may transfer this Agreement or any portion of it,
or any or all of its rights, obligations or interests under it, without
restriction.
25 Notices. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be given (a) by personal delivery or (b) provided such notice,
request, demand or communication is actually received by the party to which it
is addressed in the ordinary course of delivery, by deposit in the official mail
of the country of origin, postage prepaid, or (c) by registered or certified
mail, return receipt requested, postage prepaid, or by delivery to a worldwide
overnight courier service, in each case, addressed as follows, or to such other
person or entity as either party shall designate by notice to the other in
accordance herewith:
PJI: If by mail:
P.O. Box 99900
Louisville, Kentucky 40269-0900 USA
ATTN: General Counsel
If by personal delivery or courier:
10801 Electron Drive
Louisville, Kentucky 40299-3880 USA
ATTN: General Counsel
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Licensee: 9109 Parkway East
Birmingham, Alabama 35206
ATTN: President
With a copy to: Michael M. Fleishman
Greenebaum Doll & McDonald
3300 National City Tower
Louisville, Kentucky 40202-3197
Except as otherwise provided herein, a notice shall be deemed to have been
given (i) on the date of personal delivery to a party; (ii) five business days
after the date deposited in official mail; or (iii) one business day after
deposited with a worldwide overnight courier.
26 Independent Contractor. It is understood and agreed by the parties
that this Agreement creates only a contractual relationship between the parties
subject to the normal rules of contract law. This Agreement does not create a
fiduciary relationship between PJI and Licensee and Licensee is and shall remain
an independent contractor. Nothing in this Agreement is intended to constitute
either party an agent, legal representative, subsidiary, joint venturer,
partner, employee, or servant of the other for any purpose whatsoever. Licensee
agrees to identify itself and hold itself out to the public and all customers
and suppliers as an independent contractor, separate and apart from PJI.
Licensee agrees that Licensee shall not make any contract, agreement, warranty,
or representation on PJI's behalf without PJI's prior written consent, and
Licensee agrees that Licensee shall not incur any debt or other obligation in
PJI's name. This Agreement shall not be deemed to confer any rights or benefits
to any person or entity not expressly named herein.
27 Enforcement.
(a) Arbitration. Except for controversies, disputes or claims related
to or based on Licensee's use of the Marks or the Technology after the
expiration or termination of this Agreement or, at PJI's option, Licensee's
violation of any provision of Sections 14 or 17 hereof; all controversies,
disputes or claims between (1) PJI and/or its Affiliates, shareholders,
officers, directors, agents or employees and (2) Licensee (including its owners,
guarantors, affiliates and employees, if applicable) arising out of or related
to:
(i) this Agreement or any other agreement between Licensee and
PJI or any provision of any such agreement;
(ii) PJI's relationship with Licensee, including issues relating
to PJI's decision to terminate that relationship;
(iii) the validity of this Agreement or any other agreement
between Licensee and PJI or any provision of any such agreement; or
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(iv) any standard, specification or operating procedure relating
to the production, sale or distribution of the Licensed Products will be
submitted for binding arbitration to the Louisville, Kentucky office of the
American Arbitration Association on demand of either party. Such arbitration
proceeding will be conducted in Louisville, Kentucky and, except as otherwise
provided in this Agreement, will be heard by one arbitrator in accordance with
the then current commercial arbitration rules of the American Arbitration
Association. All matters relating to arbitration will be governed by the United
States Federal Arbitration Act (9 U.S.C. (S)(S) 1 et seq.) and not by any other
arbitration law .
The arbitrator will have the right to award or include in the award any
relief that the arbitrator deems proper in the circumstances, including, without
limitation, money damages (with interest on unpaid amounts from the date due),
specific performance, injunctive relief and attorneys' fees and costs, provided
that the arbitrator will not have the right to declare any mark generic or
otherwise invalid or, except as otherwise provided in this Agreement, to award
exemplary or punitive damages. The award and decision of the arbitrator will be
conclusive and binding upon all parties hereto, and judgment upon the award may
be entered in any court of competent jurisdiction.
PJI and Licensee agree to be bound by the provisions of any limitation on
the period of time in which claims must be brought under applicable law or this
Agreement, whichever expires earlier. PJI and Licensee further agree that, in
connection with any such arbitration proceeding, each party must submit or file
any claim which would constitute a compulsory counterclaim (as defined by Rule
13 of the United States Federal Rules of Civil Procedure) within the same
proceeding as the claim to which it relates. Any such claim which is not
submitted or filed as described above will be forever barred.
PJI and Licensee agree that arbitration will be conducted on an individual,
not a class-wide, basis, and that an arbitration proceeding between PJI
(including its Affiliates, shareholders, officers, directors, agents and
employees) and Licensee (and/or its owners, guarantors, affiliates and
employees, if applicable) may not be consolidated with any other arbitration
proceeding between PJI and any other person, corporation, limited liability
company or partnership.
Notwithstanding anything to the contrary contained in this Section, PJI and
Licensee each have the right in a proper case to obtain temporary restraining
orders and temporary or preliminary injunctive relief from a court of competent
jurisdiction; provided, however, that PJI and Licensee must contemporaneously
submit the dispute for arbitration on the merits as provided herein except as
otherwise provided in the first paragraph of this Section.
The provisions of this Section are intended to benefit and bind certain
third party non-signatories and will continue in full force and effect
subsequent to and notwithstanding the expiration or termination of this
Agreement.
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(b) Governing Law. All matters relating to arbitration will be
governed by the United States Federal Arbitration Act (9 U.S.C. (S)(S) 1 et
seq). Except to the extent governed by the Federal Arbitration Act, the United
States Trademark Act of 1946 (Lanham Act, 15 U.S.C. Sections 1051 et seq.) or
other pre-emptive law, this Agreement and all claims arising from the
relationship between PJI and Licensee will be governed by the laws of the State
of Kentucky without regard to its conflict of laws principles.
(c) Consent to Jurisdiction and Venue. Licensee and its owners agree
that all judicial actions brought by PJI (or its Affiliates) against Licensee or
its owners or by Licensee or its owners against PJI or PJI's Affiliates,
subsidiaries, shareholders, officers, directors, agents or employees must be
brought in any court of competent jurisdiction in Jefferson County, Kentucky or
United States District Court for the Western District of Kentucky and Licensee
(and each owner) irrevocably submit to the jurisdiction of such courts and waive
any objection that Licensee or any of its owners may have to either the
jurisdiction of or venue in such courts. Notwithstanding the foregoing, PJI may
bring an action to obtain a restraining order or temporary or preliminary
injunction, or enforce an arbitration award, in any court of general
jurisdiction in the Territory.
(d) Waiver of Punitive Damages. Except with respect to Licensee's
obligation to indemnify PJI pursuant to Section 16.(a) and claims brought by PJI
against Licensee for unauthorized use or disclosure of any Confidential
Information, PJI and Licensee (and Licensee's owners) waive to the fullest
extent permitted by law any right to or claim for any punitive or exemplary
damages against the other and agree that, in the event of a dispute, the party
making a claim will be limited to equitable relief and to recovery of any actual
damages it sustains.
(e) Waiver of Jury Trial. PJI and Licensee irrevocably waive trial by
jury in any action, proceeding or counterclaim, whether at law or in equity,
brought by either of them.
(f) Limitations of Claims. Any and all claims arising out of or
relating to this Agreement or the relationship of Licensee and PJI pursuant to
this Agreement will be barred unless an action is commenced within one (1) year
from the date on which the act or event giving rise to the claim occurred, or
one (1) year from the date on which the claimant knew or should have known, in
the exercise of reasonable diligence, of the facts giving rise to such claims,
whichever occurs later.
(g) Costs, Expenses and Attorneys' Fees. Except as provided in
Sections 16 and 27.(a), each party shall pay its own costs, expenses and
attorneys' fees in any action, claim, suit or proceeding arising out of this
Agreement or the relationship of the parties.
28 Miscellaneous.
(a) Severability. Licensee agrees to be bound to the maximum extent
permitted by law which is subsumed within the terms of any provision hereof, as
though it were separately articulated in and made a part of this Agreement, that
may result from the striking of
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<PAGE>
any provision hereof by a court, or which a court holds to be unenforceable in a
final decision to which PJI is a party, or that may result from reducing the
scope of any provision to the extent required to comply with a court order or
with any applicable law, whether currently in effect or subsequently enacted.
(b) Construction. All references herein to the masculine, neuter, or
singular shall be construed to include the masculine, feminine, neuter, or
plural, as the case may require. All acknowledgments, warranties,
representations, covenants, agreements, and obligations herein made or
undertaken by Licensee shall be deemed jointly and severally undertaken by all
those executing this Agreement as Licensee.
(c) Entire Agreement. This Agreement comprises the entire agreement
between the parties, and all prior understandings or agreements concerning the
subject matter hereof are canceled and superseded by this Agreement.
(d) Affiliate. As used in this Agreement, the term "Affiliate" shall
mean: with respect to PJI, any person or entity that is owned or controlled by
PJI or which owns and controls PJI or is under common control with PJI; and,
with respect to Licensee, any person or entity that is owned or controlled by
Licensee or which owns and controls Licensee or is under common control with
Licensee.
(e) Amendments. Except for those permitted to be made unilaterally by
PJI, no supplement, amendment or variation of the terms of this Agreement shall
be valid unless made in writing and signed by the parties hereto.
(f) Waivers. No failure by PJI to exercise any right given to it
hereunder, or to insist upon strict compliance by Licensee with any obligation,
agreement or undertaking hereunder, and no custom or practice of the parties at
variance with the terms hereof shall constitute a waiver of PJI's right to
demand full and exact compliance by Licensee with the terms hereof. Waiver by
PJI of any particular default by Licensee shall not affect or impair PJI's
rights with respect to any subsequent default of the same or of a different
nature, nor shall any delay or omission of PJI to exercise any right arising
from such default affect or impair PJI's rights as to such default or any
subsequent default.
(g) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(h) Headings. The headings used in this Agreement are for convenience
only, and the paragraphs shall be interpreted as if such headings were omitted.
(i) Time of Essence. Each party agrees and acknowledges that time is
of the essence with regard to its obligations hereunder, and that all of
Licensee's obligations are material to PJI and this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
written above.
PAPA JOHN'S INTERNATIONAL, INC.
By: ____________________________________________
Robert N. Thiess, Vice President for
International Development
PIZZA CARIBE, INC.
By: ____________________________________________
Douglas S. Stephens, President
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<PAGE>
PAPA JOHN'S
COMMISSARY LICENSE AGREEMENT
EXHIBIT A
TERRITORY
---------
____________ __, 1998
The areas encompassed on the attached map entitled "PIZZA CARIBE, INC."
comprising the whole of the Commonwealth of Puerto Rico shall constitute the
"Territory," as defined in the Papa John's Commissary License Agreement of even
date herewith, by and between PAPA JOHN'S INTERNATIONAL, INC. and PIZZA CARIBE,
INC.
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<PAGE>
PAPA JOHN'S
COMMISSARY LICENSE AGREEMENT
EXHIBIT C
OPTION PURCHASE PRICE FORMULA
-----------------------------
Total Option Purchase Price = Base Purchase Price + Profit Sharing
Where:
Base Purchase Price = Total Net Investment + Interest.
Total Net Investment = Accumulated gross investment in Property, Plant and
Equipment, plus Accumulated Net Loss; at the time of exercise of the Option.
Accumulated gross investment means the accumulated costs of all Property, Plant
and Equipment. Cost means cost as determined in accordance with Generally
Accepted Accounting Principles. Total Net Investment shall be determined
annually on the anniversary date of the Commissary License Agreement, except for
the year in which the Option is exercised, in which case Total Net Investment
shall be determined as of the date of exercise of the Option.
Interest = Interest at an annual rate of 12% on Total Net Investment,
calculated annually on the anniversary date of the Commissary License Agreement
(except in the year of exercise of the Option, in which case a partial year
calculation shall be made through the date of exercise of the Option) and
accumulated, without compounding, through the date of exercise of the Option.
Property, Plant and Equipment = All assets of the Commissary minus: (a) all
assets classified as current assets under Generally Accepted Accounting
Principles; and (b) intangible assets representing or relating to (i) licenses
granted by PJI, (ii) any trademark, service mark, trade name or other
commercial symbol used in connection with the operation of the Commissary; or
(iii) any goodwill or "going concern" value.
Net Loss = Net loss on operation of the Commissary, as determined annually
(except in the year in which the option is exercised, in which case net loss
shall be determined for the partial year from the date of the last prior
determination through the date of exercise of the Option) in accordance with
Generally Accepted Accounting Principles, before provision for income taxes and
provided: (a) PJI shall have the right to review and approve the amount and
types of costs and expenses charged against revenue to determine net loss; (b)
PJI shall not disapprove any type of cost or expense customarily charged or
allocated to the commissary operations of PJI's own subsidiaries or affiliates;
and (c) PJI may withhold approval of any amount of cost or expense only
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<PAGE>
upon demonstration that such cost or expense is materially excessive in view of
the customary operations PJI commissaries operated by PJI, its subsidiaries or
affiliates.
Accumulated Net Loss = Net Loss on an accumulated basis through the date of
exercise of the Option, reduced by Net Income accumulated through the same date,
but in no case less than zero.
Net Income = Net income on operation of the Commissary, determined on the
same basis as Net Loss.
Profit Sharing = Payments to Licensee in the following amounts for the
first three years after the closing of the purchase pursuant to the Option:
Year 1: 75% of Net Income for Year 1
Year 2: 50% of Net Income for Year 2
Year 3: 25% of Net Income for Year 3
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<PAGE>
Exhibit 10.32
PAPA JOHN'S
DEVELOPMENT AGREEMENT
Developer: Pizza Caribe, Inc.
Address: 9109 Parkway East
Birmingham, Alabama 35206
Number of Restaurants: Twenty (20)
Development Area: Puerto Rico
<PAGE>
TABLE OF CONTENTS
Page
1. Grant.....................................................................2
2. Development Fee...........................................................3
3. Development of Restaurants; Schedule for Completion.......................4
4. Term......................................................................7
5. Construction or Remodeling................................................7
6. Your Organization, Operation and Ownership................................7
7. Your Covenants............................................................8
8. Principal Operator.......................................................10
9. Default and Termination..................................................11
10. Assignment or Transfer...................................................13
11. No Grant of Franchise or Franchise Rights................................13
12. Notices..................................................................13
13. Independent Contractor; Indemnification..................................14
14. Enforcement..............................................................15
15. Acknowledgements.........................................................20
16. Miscellaneous............................................................21
<PAGE>
DEVELOPMENT AGREEMENT
---------------------
THIS DEVELOPMENT AGREEMENT ("Agreement") is made and entered into this
2nd day of June, 1998, by and between PAPA JOHN'S INTERNATIONAL, INC., a
Delaware corporation ("we", "us" or "Papa John's"), and PIZZA CARIBE, INC., a
Delaware corporation ("you"). If you are a corporation, limited liability
company or partnership, certain provisions of the Agreement also apply to your
owners and will be noted.
RECITALS:
--------
A. We and our Affiliates (defined below) have expended time, money and
effort to develop a unique system for operating retail restaurants devoted
primarily to carry-out and delivery of pizza and other food items. The chain of
current and future Papa John's restaurants are referred to herein as the "Papa
John's Chain" or the "Chain".
B. The Chain is characterized by a unique system which includes special
recipes and menu items; distinctive design, decor, color scheme and furnishings;
software and programs; standards, specifications and procedures for operations;
procedures for quality control; training assistance; and advertising and
promotional programs all of which we may improve, amend and further develop from
time to time (the "System").
C. We identify our goods and services with certain service marks, trade
names and trademarks, including but not limited to, "Papa John's", "Papa John's
Pizza," "Pizza Papa John's Delivering the Perfect Pizza!" and "Better
Ingredients. Better Pizza." as well as certain other trademarks, service marks,
slogans, logos and emblems that have been and may be designated for use in
connection with the System from time to time (the "Marks").
<PAGE>
D. You desire to obtain certain rights to develop one or multiple Papa
John's Pizza restaurant(s) in the "Development Area" (as defined below) in
accordance with the terms of this Agreement.
E. We have agreed to grant you such rights;
NOW, THEREFORE, the parties agree as follows:
1. Grant.
-----
(a) Subject to the terms and conditions of this Agreement and your
continuing faithful performance, we hereby grant to you the right and obligation
to establish 20 Papa John's restaurant(s) (at specific locations we approve) in
the areas specified on attached Exhibit A. (The Papa John's restaurants that you
develop pursuant to this Agreement are collectively referred to as the
"Restaurants" and individually as a "Restaurant"; the areas specified on Exhibit
A are collectively referred to as the "Development Area"). Notwithstanding the
foregoing, enclosed malls, institutions (such as hospitals or schools),
airports, parks (including theme parks), and sports arenas (individually a
"Special Site" and collectively "Special Sites") shall be excluded from the
Development Area unless otherwise agreed by us in writing, and absent such
agreement, we may open Papa John's restaurants, or franchise the right to open
Papa John's restaurants to other persons at any of these locations, regardless
of where they are located. However, if we propose to develop or license another
to develop a Papa John's restaurant at any Special Site located within the
boundaries of the Development Area, we will provide you with the opportunity to
develop such Special Site restaurant, provided, that (i) you understand,
acknowledge and agree that circumstances of a particular Special Site that are
beyond our reasonable control may preclude you from developing or operating a
Papa John's restaurant at such Special Site; and (ii) you must be in compliance
with your obligations under this Agreement and all Franchise Agreements then in
effect. Unless we otherwise agree in writing, a Papa John's restaurant operated
at a Special Site shall not count towards your development obligations as set
forth in Sections 1.(a) and 3.(e) of this Agreement.
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<PAGE>
(b) Each Restaurant shall be established and operated pursuant to a
separate "Franchise Agreement" to be entered into between you and us. As used
herein, the term "Franchise Agreement" shall mean the form of Papa John's
Franchise Agreement (for the initial Restaurant) or Short Form Franchise
Agreement (for each subsequent Restaurant) to be executed for each Restaurant
developed under this Agreement and all attachments and exhibits thereto.
(c) Except as may be otherwise provided herein or in the Franchise
Agreements, we shall not locate, nor license another to locate, a Papa John's
restaurant in the Development Area during the "Term" (as defined in Section 4).
(d) This Agreement is not a franchise agreement and we do not grant
you any franchise rights or other rights to use the Marks or System under this
Agreement.
(e) You have no right to license or subfranchise others to use the
Marks or the System, or to enter into any agreement with respect to the Marks or
System.
2. Development Fee. You have paid to us a development fee of One Hundred
Thousand Dollars ($100,000) ("Development Fee") (i.e. Five Thousand Dollars
($5,000) for each Restaurant to be developed), receipt of which we acknowledge.
The Development Fee was fully earned by us when paid, is non-refundable and is
not contingent upon our rendering any further performance. The Development Fee
is in consideration of, among other things, the development rights granted to
you, the reservation of the Development Area, the development opportunities
lost or deferred as a result of the rights granted to you in this Agreement and
the administrative and other expenses that we have incurred. However, $5,000 of
the Development Fee will be credited against each Initial Franchise Fee at the
time it is paid, as provided in Section 3.(f).
3. Development of Restaurants; Schedule for Completion.
---------------------------------------------------
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<PAGE>
(a) You shall have the number of Restaurants open and operating within
the time frame set forth in subsection 3.(e). below, and you shall exercise each
such development right only at locations that we have approved within the
Development Area.
(b) With respect to each proposed location, you shall submit a
completed site evaluation form, together with such other information and
materials as we may reasonably request. We shall have 30 days after receipt of
such information to accept or reject each proposed location. If we fail to
respond within such 30 day period, the location submitted by you shall be deemed
to be approved. We will not unreasonably withhold our approval of a location. In
approving or disapproving any proposed site, we will consider such matters as we
deem material, including, without limitation, demographic characteristics of the
proposed site, traffic patterns, parking, the predominant character of the
neighborhood, competition from other businesses providing similar services
within the area (including other Papa John's Restaurants), the proximity to
other businesses, the rights granted to our other franchisees, the nature of
other businesses in proximity to the site, and other commercial characteristics
(including the purchase price or rental obligations and other lease terms for
the proposed site) and the size of the premises, appearance, and other physical
characteristics of the proposed site. Approval of a site by us does not
constitute an assurance, representation or warranty of any kind, expressed or
implied, as to the successful operation of a Papa John's Restaurant, or for any
other purpose. Our approval of a site indicates only that we believe the site
complies with an acceptable minimum criteria that we establish solely for our
purposes as of the time period encompassing the evaluation. You acknowledge that
application of criteria that have been effective with respect to other sites and
premises may not be predictive of potential for all sites. Further, demographic
and/or economic factors included in our criteria could change and other relevant
factors that might alter the potential of a site may be excluded from our
criteria. The uncertainty and instability of such criteria are beyond our
control. We are not responsible if a site that we approve fails to meet your
expectations as to potential revenue or operational criteria or for your failure
to locate the required number of suitable sites in the Development Area. You
further acknowledge and agree that your acceptance of a Franchise for the
operation of a Papa John's Restaurant at a site is based on your own independent
investigation of the suitability of a site. Any proposed lease shall include an
addendum in the form
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<PAGE>
of Exhibit A to the Franchise Agreement, or shall contain terms and conditions
substantially similar to those contained in Exhibit A to the Franchise
Agreement. Any changes in the language set forth in Exhibit A must be approved
by us in advance in writing.
(c) We shall deliver the Franchise Agreement to you within 20 days
after you provide the address and telephone number for an approved location that
you have leased or purchased. The Franchise Agreement for such location must be
signed by you and submitted to us along with payment of the initial franchise
fee within 10 days after it is delivered to you.
(d) The approval of a location and the delivery of a Franchise
Agreement by us shall be conditioned upon a determination by us, in our
reasonable judgment, that:
(i) You have the financial and operational capacity to develop
and operate the Restaurant;
(ii) the site that you propose for the Restaurant is within the
Development Area and is a suitable site based upon criteria that we establish
from time to time; and
(iii) You and your owners are in compliance with this Agreement
and all Franchise Agreements executed pursuant to this Agreement.
(e) Notwithstanding any provision of any Franchise Agreement entered
into between us and you, you shall exercise each development right as follows:
DEVELOPMENT SCHEDULE
--------------------
Dates on Which Each Cumulative Number of
Restaurants
Restaurant Shall be Open to be Open and
Operating*
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<PAGE>
December 31, 1998 1
February 21, 1999 2
April 25, 1999 3
July 25, 1999 4
October 24, 1999 5
January 23, 2000 6
April 23, 2000 7
July 23, 2000 8
October 22, 2000 9
January 28, 2001 10
April 29, 2001 11
July 29, 2001 12
October 28, 2001 13
January 27, 2002 14
April 28, 2002 15
July 28, 2002 16
October 27, 2002 17
January 26, 2003 18
April 27, 2003 19
July 27, 2003 20
[* - Includes only those Restaurants to be developed pursuant to this
Development Agreement.]
(f) The Initial Franchise Fee to be paid by you for each Restaurant
shall be $20,000; provided that $5,000 of the Development Fee shall be credited
against the Initial Franchise Fee. The net amount of the Initial Franchise Fee
($15,000) shall be paid at the time each Franchise Agreement is executed.
(g) It shall be your responsibility to ensure that each Restaurant is
constructed or remodeled, and equipped and operated in compliance with all laws,
ordinances and governmental rules and regulations and the Franchise Agreement,
and you shall obtain all necessary permits and licenses relating thereto.
4. Term. Unless sooner terminated as provided in this Agreement, this
Agreement shall expire on the earlier to occur of: (a) the date on which all
the Restaurants have been developed, or (b) 12:00 midnight on the last date set
forth on the Development Schedule (the
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<PAGE>
"Term"). Upon the termination or expiration of this Agreement, all unexercised
development rights shall expire.
5. Construction or Remodeling. You shall, at your own expense, construct
or remodel the Restaurant at each location in accordance with the then-current
specifications and standards established for the System and the terms of the
Franchise Agreement. You shall allow us and our agents and employees access to
all areas of the premises of each Restaurant at such times as we or they may
reasonably request and you shall cooperate fully with us and our agents and
employees in preparing specifications applicable to the location of each
Restaurant to be developed hereunder. However, it shall be your obligation to
have plans drawn showing the layout of all equipment, signs and leasehold
improvements, and such plans shall be subject to our approval, which approval
shall not be unreasonably withheld. You shall not begin construction or
remodeling on any Restaurant until the Franchise Agreement has been fully signed
and we have approved the plans for such Restaurant.
6. Your Organization, Operation and Ownership. If you are a corporation,
partnership, limited liability company or other entity:
(a) If we request from time to time, you shall furnish us with your
Articles of Incorporation, Articles of Organization, Operating Agreement, By-
Laws and other governing documents (and any amendments or modifications
thereof), minutes and resolutions and all agreements or other documents, records
and information pertaining to your existence and operation.
(b) You shall confine your business activities exclusively to the
establishment, management and operation of Papa John's restaurants pursuant to
agreements with us.
(c) You shall, at the same time you execute this Agreement, and at
such other times as we may request, disclose the name and address of each person
or entity owning a
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<PAGE>
beneficial interest in you, and you shall not issue any additional securities,
nor allow the "transfer" (as defined in Section 10) of any of your outstanding
securities, except as provided in Section 10.
(d) You shall at all times comply with all applicable laws,
ordinances, rules and regulations of governmental bodies.
(e) You shall cause all persons or entities owning any interest in you
to sign the Owner Agreement in the form we provide.
7. Your Covenants.
--------------
(a) Covenant Not-to-Compete. You covenant and agree that during the
Term and for a period of two years after the expiration or termination of this
Agreement, regardless of the cause for such expiration or termination (the
"Restricted Period"), you shall not, anywhere within either (1) the boundaries
of the Development Area including, for purposes of this Section 7 only, any
locations excluded from the Development Area by the operation of Section 1.(a);
or (2) a 10-mile radius of any business location at which you, we or our
Affiliate or our franchisee then conducts a Papa John's business, engage in any
of the following activities:
(i) directly or indirectly enter into the employ of, render any
service to or act in concert with any person, partnership, limited liability
company, corporation or other entity that owns, operates, manages, franchises or
licenses any business that (A) sells pizza or other non-pizza products
(excluding soft drinks) that are the same as those sold by Papa John's
restaurants on a delivery or carry-out basis, including, without limitation,
business formats such as Domino's, Pizza Hut, Mr. Gatti's, Sbarro and Little
Caesars, or (B) derives 20% or more of its gross revenues, at the retail level,
from the sale of pre-cooked, ready-to-eat food products on a delivery basis (a
"Competitive Business"); or
(ii) directly or indirectly engage in any such Competitive
Business on your own account; or
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<PAGE>
(ii) become interested in any such Competitive Business directly or
indirectly as a partner, member, shareholder, principal, agent, consultant or in
any other relationship or capacity; provided, that the purchase of a publicly
traded security of a corporation engaged in such business or service shall not
in itself be deemed violative of this Agreement so long as you do not own,
directly or indirectly, more than 1% of the securities of such corporation.
To the extent required by the laws of the state in which the Restaurants are to
be developed, the duration or the geographic areas included within the foregoing
covenants, or both, shall be deemed amended in accordance with Section 7.(f).
(b) Appropriation and Disclosure of Information. Except as permitted
by the Franchise Agreement, you will not at any time use, copy or duplicate the
System or any aspect thereof, or any of our trade secrets, recipes, methods of
operation, processes, formulas, advertising, marketing, designs, trade dress,
plans, know-how or other proprietary ideas or information, nor will you convey,
divulge, make available or communicate such information to any third party or
assist others in using, copying or duplicating any of the foregoing.
(c) Infringement. You will not at any time commit any act that would
infringe upon or impair the value of the System or the Marks, nor will you
engage in any business or market any product or service under a trade-name,
trademark, service mark, logo or design that is confusingly or deceptively
similar to any of the Marks.
(d) Solicitation of Employees. You agree that from and after the date
of this Agreement, you will not solicit, entice or induce, directly or
indirectly, any employee of us or an Affiliate or our franchisees to leave their
employment to work with you or with any person or entity with whom you are or
become affiliated.
(e) Reasonableness of Scope and Duration. You agree that the covenants
and agreements contained herein are, taken as a whole, reasonable with respect
to the activities
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<PAGE>
covered and their geographic scope and duration, and you shall not raise any
issue of the reasonableness of the areas, activities or duration of any such
covenants in any proceeding to enforce any such covenants. You acknowledge and
agree that you have other skills and resources and that the restrictions
contained in this Section 7 will not hinder your activities or ability to make a
living either under this Agreement or in general.
(f) Enforceability. You agree that we may not be adequately
compensated by damages for a breach by you of any of the covenants and
agreements contained in this Section, and that we shall, in addition to all
other remedies, be entitled to injunctive relief and specific performance. The
covenants and agreements contained in this Section shall be construed as
separate covenants and agreements, and if any court shall finally determine that
the restraints provided for in any such covenants and agreements are too broad
as to the area, activity or time covered, said area, activity or time covered
may be reduced to whatever extent the court deems reasonable, and such covenants
and agreements shall be enforced as to such reduced area, activity or time.
8. Principal Operator. You shall designate an individual to serve as your
"Principal Operator." The Principal Operator shall meet the following
qualifications:
(a) The Principal Operator shall devote full time and best efforts to
the supervision and conduct of the development and operation of the Restaurants
contemplated under this Agreement and shall agree to be bound by the
confidentiality and non-competition provisions of the Owner Agreement.
(b) The Principal Operator shall be a person we reasonably approve who
shall successfully complete our initial training requirements and who shall
participate in and successfully complete all additional training as we may
reasonably designate.
If, at any time or for any reason, the Principal Operator no longer
qualifies to act as such, you shall promptly designate another Principal
Operator subject to the same qualifications listed
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<PAGE>
above. You shall immediately notify us of the termination of the Principal
Operator's employment with you, whether voluntary or involuntary.
9. Default and Termination.
(a) Automatic Termination. You shall be in default under this
Agreement, and this Agreement and all rights granted in it shall automatically
terminate without notice to you, (i) if you make a general assignment for the
benefit of creditors or if a petition in bankruptcy is filed by you; or (ii)
such a petition is filed against and not opposed by you; or (iii) if you are
adjudicated as bankrupt or insolvent; or (iv) if a bill in equity or other
proceeding is filed for the appointment of a receiver or other custodian for
your business or assets is filed and consented to by you; or (v) if a receiver
or other custodian (permanent or temporary) of your assets or property, or any
part thereof, is appointed by any court of competent jurisdiction; or (vi) if
proceedings for a composition with creditors under any state or federal law are
instituted by or against you; or (vii) if a final judgment remains unsatisfied
or of record for thirty (30) days or longer (unless supersedeas bond is filed);
or (viii) if you are dissolved; or (ix) if any portion of your interest in any
Papa John's franchise becomes subject to an attachment, garnishment, levy or
seizure by any creditor or any other person claiming against or in your rights;
or (x) if execution is levied against your business or property; or (xi) if the
real or personal property of any Restaurant shall be sold after levy thereupon
by any sheriff, marshal, or constable.
(b) Without Notice. You shall be in default under this Agreement, and
we may, at our option, terminate this Agreement and all rights granted under it
without affording you any opportunity to cure such default, effective upon the
earlier of (1) receipt of the notice of termination by you, or (2) five days
after mailing of such notice by us, upon the occurrence of any of the following
events:
(i) if you fail to strictly comply with the development schedule
set forth in Section 3;
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<PAGE>
(ii) if any Franchise Agreement entered into pursuant to this
Agreement or otherwise is terminated as a result of your breach or default;
(iii) if you make or attempt to make any transfer, whether
voluntary or involuntary, of this Agreement or any interest herein, or of any
rights or obligations arising under this Agreement, or of any interest in you,
or of any material portion of your assets, without our prior written consent,
except as otherwise provided under the Franchise Agreement; or
(iv) if you fail to comply with any of your covenants set forth
in Section 7 of this Agreement.
(c) With Notice. For any other breach or default under this Agreement,
we will provide you with written notice of default and 15 days to cure or, if a
default cannot be reasonably be cured within 15 days, to initiate within that
time substantial and continuing action to cure such default and to provide us
with evidence of such actions. If the defaults specified in such notice are not
cured within the 15 day period, or if substantial and continuing action to cure
has not been initiated, we may, at our option, terminate this Development
Agreement and all rights granted to you under it by giving written notice of
such termination to you. The notice of termination shall be effective on the
earlier of (i) the date of reception of the notice by you or (ii) five days
after the mailing of such notice by us.
(d) Effect of Termination. Upon termination of this Agreement, all
your rights under it shall terminate and you shall have no further right to
establish any Restaurants. In addition, upon termination of this Agreement, we
shall have the right to open and operate, or to franchise others to open and
operate, Papa John's restaurants anywhere within the Development Area, except
that we may not locate or franchise another to locate a Papa John's restaurant
within the "Territory" provided for in any Franchise Agreement that remains in
effect after the date of termination.
10. Assignment or Transfer.
----------------------
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<PAGE>
(a) Transfer by Us. We may transfer this Agreement or any portion of
it, or any or all of our rights, obligations or interests under it, without
restriction. Upon any transfer or assignment of this Agreement by us, we shall
be released from all obligations and liabilities arising or accruing in
connection with this Agreement after the date of such transfer or assignment.
(b) Transfer by You. This Agreement, and your rights and obligations
under it, are and shall remain personal to you. Any proposed transfer by you or
any of your owners (regardless of the form of transfer) shall be subject to the
same terms and conditions contained in the Franchise Agreement. As used herein,
the term "transfer" shall mean any sale, assignment, gift, pledge, mortgage or
any other encumbrance, transfer by bankruptcy, transfer by judicial order,
merger, consolidation, share exchange, transfer by operation of law or
otherwise, whether direct or indirect, voluntary or involuntary, of this
Agreement or any interest in it, or any rights or obligations arising under it,
or of any material portion of your assets, or of any interest in you.
11. No Grant of Franchise or Franchise Rights. This Agreement does not
grant you a franchise or any rights of a Papa John's franchisee. To the fullest
extent permissible by law, you waive the applicability of any law that would
constitute this Agreement or any rights granted under it as a franchise
agreement or as granting any franchise rights.
12. Notices. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be given (a) by personal delivery or (b) provided such notice,
request, demand or communication is actually received by the party to which it
is addressed in the ordinary course of delivery, by deposit in the United States
mail, postage prepaid, or (c) by registered or certified mail, return receipt
requested, postage prepaid, or by delivery to a nationally-recognized overnight
courier service, in each case, addressed as follows, or to such other person or
entity as either party shall designate by notice to the other in accordance
herewith:
Us: If by Mail:
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<PAGE>
P.O. Box 99900
Louisville, Kentucky 40269-0900
ATTN: General Counsel
If by Courier or Personal Delivery:
10801 Electron Drive, Suite 100
Louisville, Kentucky 40299-3880
ATTN: General Counsel
You: 9109 Parkway East
Birmingham, Alabama 35206
ATTN: Douglas S. Stephens
Except as otherwise provided herein, a notice shall be deemed to have been
given on the date of personal delivery to a party or the date deposited in the
United States mail or with a nationally-recognized overnight courier.
13. Independent Contractor; Indemnification.
(a) Independent Contractor. It is understood and agreed by the parties
that this Agreement creates only a contractual relationship between the parties
subject to the normal rule of contract law. This Agreement does not create a
fiduciary relationship between us and you and you are and shall remain an
independent contractor. Nothing in this Agreement is intended to constitute
either party an agent, legal representative, subsidiary, joint venturer,
partner, employee, or servant of the other for any purpose whatsoever. You agree
to hold yourself out to the public as an independent contractor, separate and
apart from us. You agree that you shall not make any contract, agreement,
warranty, or representation on our behalf without our prior written consent, and
you agree that you shall not incur any debt or other obligation in our name.
This Agreement shall not be deemed to confer any rights or benefits to any
person or entity not expressly named herein.
(b) Business Management. You agree and acknowledge that: (i) we will
have no responsibility for the day-to-day operations of any Restaurant developed
under this Agreement or the management of your business; and (ii) you shall
independently control the operation of your
-14-
<PAGE>
business and the results of your operations will depend almost exclusively on
your business acumen and promotional and managerial efforts.
(c) Indemnification. We shall not be liable by reason of any act or
omission of you in your development, construction or conduct of the Restaurants
or for any claim, cause of action or judgment arising therefrom against you or
us. You agree to hold harmless, defend and indemnify us and our affiliates,
officers, directors, agents, and employees, from and against any and all losses,
expenses, judgments, claims, attorney fees and damages arising out of or in
connection with any claim or cause of action in which we shall be a named
defendant and that arises, directly or indirectly, out of the operation of, or
in connection with, your Restaurants, other than a claim resulting directly from
our negligence.
14. Enforcement.
(a) ARBITRATION. EXCEPT FOR CONTROVERSIES, DISPUTES OR CLAIMS RELATED
TO OR BASED ON (1) YOUR USE OF THE MARKS AFTER THE EXPIRATION OR TERMINATION OF
THIS AGREEMENT OR, AT OUR OPTION, YOUR VIOLATION OF ANY PROVISION OF SECTION 7
HEREOF; OR (2) ANY ACTION ARISING OUT OF OR RELATING TO ANY FINANCING PROVIDED
TO YOU BY US OR OUR AFFILIATES AND THE AGREEMENTS, NOTES, LIENS AND SECURITY
INTERESTS RELATED THERETO AND THE ENFORCEMENT, INTERPRETATION OR COLLECTION
THEREOF, ALL CONTROVERSIES, DISPUTES OR CLAIMS BETWEEN US (INCLUDING OUR
AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES) AND YOU
(INCLUDING YOUR OWNERS, GUARANTORS, AFFILIATES AND EMPLOYEES, IF APPLICABLE)
ARISING OUT OF OR RELATED TO:
(i) THIS AGREEMENT OR ANY OTHER AGREEMENT BETWEEN YOU AND US OR
ANY PROVISION OF ANY SUCH AGREEMENT;
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<PAGE>
(ii) OUR RELATIONSHIP WITH YOU, INCLUDING ISSUES RELATING TO OUR
DECISION TO TERMINATE THAT RELATIONSHIP;
(iii) THE VALIDITY OF THIS AGREEMENT OR ANY OTHER AGREEMENT
BETWEEN YOU AND US OR ANY PROVISION OF ANY SUCH AGREEMENT; OR
(iv) ANY STANDARD, SPECIFICATION OR OPERATING PROCEDURE RELATING
TO THE DEVELOPMENT, ESTABLISHMENT OR OPERATION OF THE RESTAURANTS
WILL BE SUBMITTED FOR BINDING ARBITRATION TO THE LOUISVILLE, KENTUCKY
OFFICE OF THE AMERICAN ARBITRATION ASSOCIATION ON DEMAND OF EITHER PARTY. SUCH
ARBITRATION PROCEEDING WILL BE CONDUCTED IN LOUISVILLE, KENTUCKY AND, EXCEPT AS
OTHERWISE PROVIDED IN THIS AGREEMENT, WILL BE HEARD BY ONE ARBITRATOR IN
ACCORDANCE WITH THE THEN CURRENT FRANCHISING ARBITRATION RULES, IF ANY,
OTHERWISE THE THEN CURRENT COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION. ALL MATTERS RELATING TO ARBITRATION WILL BE GOVERNED
BY THE FEDERAL ARBITRATION ACT (9 U.S.C. (S)(S) 1 ET SEQ.) AND NOT BY ANY STATE
ARBITRATION LAW.
THE ARBITRATOR WILL HAVE THE RIGHT TO AWARD OR INCLUDE IN THE AWARD ANY
RELIEF THAT THE ARBITRATOR DEEMS PROPER IN THE CIRCUMSTANCES, INCLUDING, WITHOUT
LIMITATION, MONEY DAMAGES (WITH INTEREST ON UNPAID AMOUNTS FROM THE DATE DUE),
SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF AND ATTORNEYS' FEES AND COSTS, PROVIDED
THAT THE ARBITRATOR WILL NOT HAVE THE RIGHT TO DECLARE ANY MARK GENERIC OR
OTHERWISE INVALID OR, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, TO AWARD
EXEMPLARY OR PUNITIVE
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<PAGE>
DAMAGES. THE AWARD AND DECISION OF THE ARBITRATOR WILL BE CONCLUSIVE AND BINDING
UPON ALL PARTIES HERETO, AND JUDGMENT UPON THE AWARD MAY BE ENTERED IN ANY COURT
OF COMPETENT JURISDICTION.
WE AND YOU AGREE TO BE BOUND BY THE PROVISIONS OF ANY LIMITATION ON THE
PERIOD OF TIME IN WHICH CLAIMS MUST BE BROUGHT UNDER APPLICABLE LAW OR THIS
AGREEMENT, WHICHEVER EXPIRES EARLIER. WE AND YOU FURTHER AGREE THAT, IN
CONNECTION WITH ANY SUCH ARBITRATION PROCEEDING, EACH PARTY MUST SUBMIT OR FILE
ANY CLAIM THAT WOULD CONSTITUTE A COMPULSORY COUNTERCLAIM (AS DEFINED BY RULE 13
OF THE FEDERAL RULES OF CIVIL PROCEDURE) WITHIN THE SAME PROCEEDING AS THE CLAIM
TO WHICH IT RELATES. ANY SUCH CLAIM THAT IS NOT SUBMITTED OR FILED AS DESCRIBED
ABOVE WILL BE FOREVER BARRED.
WE AND YOU AGREE THAT ARBITRATION WILL BE CONDUCTED ON AN INDIVIDUAL, NOT A
CLASS-WIDE, BASIS, AND THAT AN ARBITRATION PROCEEDING BETWEEN US (INCLUDING OUR
AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES) AND YOU
(INCLUDING YOUR OWNERS, GUARANTORS, AFFILIATES AND EMPLOYEES, IF APPLICABLE) MAY
NOT BE CONSOLIDATED WITH ANY OTHER ARBITRATION PROCEEDING BETWEEN US AND ANY
OTHER PERSON, CORPORATION, LIMITED LIABILITY COMPANY OR PARTNERSHIP.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION, WE AND
YOU EACH HAVE THE RIGHT IN A PROPER CASE TO OBTAIN TEMPORARY RESTRAINING ORDERS
AND TEMPORARY OR PRELIMINARY INJUNCTIVE RELIEF FROM A COURT OF COMPETENT
JURISDICTION; PROVIDED, THAT WE AND YOU MUST CONTEMPORANEOUSLY SUBMIT OUR
DISPUTE FOR ARBITRATION ON THE MERITS AS PROVIDED HEREIN
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<PAGE>
EXCEPT AS OTHERWISE PROVIDED IN THE FIRST PARAGRAPH OF THIS SECTION 14.(a).
THE PROVISIONS OF THIS SECTION ARE INTENDED TO BENEFIT AND BIND CERTAIN
THIRD PARTY NON-SIGNATORIES AND WILL CONTINUE IN FULL FORCE AND EFFECT
SUBSEQUENT TO AND NOTWITHSTANDING THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT.
(b) GOVERNING LAW. ALL MATTERS RELATING TO ARBITRATION WILL BE
GOVERNED BY THE FEDERAL ARBITRATION ACT (9 U.S.C. (S)(S)1 ET SEQ). EXCEPT TO
THE EXTENT GOVERNED BY THE FEDERAL ARBITRATION ACT, THE UNITED STATES TRADEMARK
ACT OF 1946 (LANHAM ACT, 15 U.S.C. SECTIONS 1051 ET SEQ.) OR OTHER FEDERAL LAW,
THIS AGREEMENT AND ALL CLAIMS ARISING FROM THE RELATIONSHIP BETWEEN US AND YOU
WILL BE GOVERNED BY THE LAWS OF THE STATE OF KENTUCKY WITHOUT REGARD TO ITS
CONFLICT OF LAWS PRINCIPLES.
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<PAGE>
(c) CONSENT TO JURISDICTION AND VENUE. YOU AND YOUR OWNERS AGREE THAT
ALL JUDICIAL ACTIONS BROUGHT BY US AGAINST YOU OR YOUR OWNERS OR BY YOU OR YOUR
OWNERS AGAINST US OR OUR SUBSIDIARIES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS
OR EMPLOYEES MUST BE BROUGHT IN A COURT OF COMPETENT JURISDICTION IN JEFFERSON
COUNTY, KENTUCKY OR FEDERAL DISTRICT COURT FOR THE WESTERN DISTRICT OF KENTUCKY
AND YOU (AND EACH OWNER) IRREVOCABLY SUBMIT TO THE JURISDICTION OF SUCH COURTS
AND WAIVE ANY OBJECTION YOU, HE OR SHE MAY HAVE TO EITHER THE JURISDICTION OF OR
VENUE IN SUCH COURTS. NOTWITHSTANDING THE FOREGOING, WE MAY BRING AN ACTION TO
OBTAIN A RESTRAINING ORDER OR TEMPORARY OR PRELIMINARY INJUNCTION, OR ENFORCE AN
ARBITRATION AWARD, IN ANY FEDERAL OR STATE COURT OF GENERAL JURISDICTION IN THE
STATE IN WHICH YOU RESIDE OR IN WHICH THE RESTAURANTS ARE LOCATED.
(d) WAIVER OF PUNITIVE DAMAGES. EXCEPT WITH RESPECT TO YOUR
OBLIGATION TO INDEMNIFY US PURSUANT TO SECTION 13 AND CLAIMS WE BRING AGAINST
YOU FOR YOUR UNAUTHORIZED USE OR DISCLOSURE OF ANY CONFIDENTIAL INFORMATION, WE
AND YOU AND YOUR OWNERS WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT
TO OR CLAIM FOR ANY PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER AND AGREE
THAT, IN THE EVENT OF A DISPUTE BETWEEN US, THE PARTY MAKING A CLAIM WILL BE
LIMITED TO EQUITABLE RELIEF AND TO RECOVERY OF ANY ACTUAL DAMAGES IT SUSTAINS.
(e) WAIVER OF JURY TRIAL. WE AND YOU IRREVOCABLY WAIVE TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT
BY EITHER OF US.
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<PAGE>
(f) LIMITATIONS OF CLAIMS. EXCEPT FOR CLAIMS BROUGHT BY US WITH
REGARD TO YOUR OBLIGATIONS UNDER SECTIONS 7.(a), 7.(b) AND 7.(c), AND TO
INDEMNIFY US PURSUANT TO SECTION 13, ANY AND ALL CLAIMS ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE RELATIONSHIP OF YOU AND US PURSUANT TO THIS
AGREEMENT WILL BE BARRED UNLESS AN ACTION IS COMMENCED WITHIN ONE (1) YEAR FROM
THE DATE ON WHICH THE ACT OR EVENT GIVING RISE TO THE CLAIM OCCURRED, OR ONE (1)
YEAR FROM THE DATE ON WHICH YOU OR WE KNEW OR SHOULD HAVE KNOWN, IN THE EXERCISE
OF REASONABLE DILIGENCE, OF THE FACTS GIVING RISE TO SUCH CLAIMS, WHICHEVER
LATER OCCURS.
(g) Costs, Expenses and Attorneys' Fees. Except as provided in
Section 13 each party shall pay its own costs, expenses and attorneys' fees in
any action, claim, suit or proceeding arising out of this Agreement or the
franchise relationship of the parties.
15. Acknowledgements.
----------------
Your Representations. You hereby acknowledge and represent that:
--------------------
(a) All information submitted to us by you or those owning an interest
in you, including all applications, financial statements and other documents and
information, is true and correct in all respects and that it does not omit any
statement or item of material fact necessary to make the statements made therein
not false or misleading;
(b) We have not represented that (i) you will earn, can earn, or are
likely to earn a gross or net profit, (ii) we have knowledge of the relevant
market, or (iii) the market demand will enable you to earn a profit from the
Franchise;
(c) You have read and understood this Agreement and the disclosure
document entitled "Papa John's Franchise Offering Circular" (the "Offering
Circular") required by the
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<PAGE>
Federal Trade Commission or the state in which the Development Area will be
located. You understand that we make no representation or warranty regarding
your relevant market or the profitability of business operations under the
System and that no representations have been made by us, or by any of our
Affiliates or our or their officers, directors, shareholders, employees or
agents, that are contrary to or inconsistent with the terms of this Agreement or
with the statements made in the Offering Circular that accompanied a copy of
this Agreement;
(d) You accept the terms, conditions and covenants contained in this
Agreement as being reasonable and necessary to maintain our standards of
quality, service and uniformity and in order to protect and preserve the
goodwill of the Marks. You acknowledge that other franchisees of ours have been
or will be granted franchises at different times and in different situations.
You further acknowledge that the provisions of the franchise agreements pursuant
to which such franchises were granted may vary materially from those contained
in this Agreement and that your obligation arising hereunder may differ
substantially from other franchisees; and
(e) You recognize that the System may evolve and change over time and
that the Franchise involves an investment of substantial risk and its success is
dependent primarily upon your business acumen and efforts and other factors
beyond our control. You have conducted an independent investigation of the
Franchise and have had ample time and opportunity to consult with independent
professional advisors (lawyers, accountants, etc.), and have not received or
relied upon any express or implied guarantee as to potential volumes, revenues,
profits or success of the business venture contemplated by the Franchise.
16. Miscellaneous.
-------------
(a) Severability. You agree to be bound to the maximum extent
permitted by law that is subsumed within the terms of any provision hereof, as
though it were separately articulated in and made a part of this Agreement, that
may result from the striking of any provision hereof by a court, or that a court
holds to be unenforceable in a final decision to which we are a party, or that
may result from reducing the scope of any provision to the extent required to
comply
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<PAGE>
with a court order or with any state or federal law, whether currently in effect
or subsequently enacted.
(b) Construction. All references herein to the masculine, neuter, or
singular shall be construed to include the masculine, feminine, neuter, or
plural, as the case may require. All acknowledgements, warranties,
representations, covenants, agreements, and obligations herein made or
undertaken by you shall be deemed jointly and severally undertaken by all those
executing this Agreement as you. During any period in which any of the
covenants in Section 7 is being breached or violated, including any period in
which either of the parties seeks judicial enforcement, interpretation or
modification of any such covenant, and all appeals thereof, the restricted
period set forth therein shall toll and be suspended.
(c) Entire Agreement. This Agreement, the documents incorporated
herein by reference and the Exhibit attached hereto, constitute the entire
agreement between the parties, and all prior understandings or agreements
concerning the subject matter hereof are canceled and superseded by this
Agreement. The Exhibit to this Agreement is incorporated herein by reference
and made a part hereof as if set out in full herein.
(d) Affiliate. As used in this Agreement, the term "Affiliate" shall
mean any person or entity that is owned or controlled by us or which owns or
controls us or is under common control with us, either directly or through one
or more intermediaries.
(e) Amendments. Except for those permitted to be made unilaterally by
us, no supplement, amendment or variation of the terms of this Agreement shall
be valid unless made in writing and signed by the parties hereto.
(f) Waivers. No failure by us to exercise any right given to us
hereunder, or to insist upon strict compliance by you with any obligation,
agreement or undertaking hereunder, and no custom or practice of the parties at
variance with the terms hereof shall constitute a waiver of our right to demand
full and exact compliance by you with the terms hereof. Waiver by us of
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<PAGE>
any particular default by you shall not affect or impair our rights with respect
to any subsequent default of the same or of a different nature, nor shall any
delay or omission of us to exercise any right arising from such default affect
or impair our rights as to such default or any subsequent default.
(g) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(h) Headings. The headings used in this Agreement are for convenience
only, and the paragraphs shall be interpreted as if such headings were omitted.
(i) Time of Essence. You agree and acknowledge that time is of the
essence with regard to your obligations hereunder, and that all of your
obligations are material to us and this Agreement.
IN WITNESS WHEREOF, the parties have signed this Development Agreement as
of the date written above.
PAPA JOHN'S INTERNATIONAL, INC.
By:
-------------------------------------------
Robert Thiess, Vice President of
International Development
PIZZA CARIBE, INC.
By:
-------------------------------------------
Douglas S. Stephens, President
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<PAGE>
PAPA JOHN'S
DEVELOPMENT AGREEMENT
EXHIBIT A
DEVELOPMENT AREA
----------------
June 2, 1998
The areas encompassed on the attached map entitled "PIZZA CARIBE, INC."
shall constitute the "Development Area," as defined in the Papa John's
Development Agreement of even date herewith, by and between PAPA JOHN'S
INTERNATIONAL, INC. and PIZZA CARIBE, INC. (except for locations expressly
excluded from the Development Area under Section 1.(a) of the Development
Agreement).
NUMBER OF RESTAURANTS TO BE DEVELOPED 20
PAPA JOHN'S INTERNATIONAL, INC.
By:
---------------------------------------------
Robert Thiess, Vice President of
International Development
PIZZA CARIBE, INC.
By:
---------------------------------------------
Douglas S. Stephens, President
<PAGE>
Exhibit 10.33
PAPA JOHN'S
DEVELOPMENT AGREEMENT
Developer: PJ America, Inc.
Address: P.O. Box 611165
Birmingham, AL 35261-1165
Number of Restaurants: Thirty-six (36)
Development Area: North Portland, East Portland
West Portland and Salem, Oregon
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
1. Grant............................................................. 2
2. Development Fee................................................... 3
3. Development of Restaurants; Schedule for Completion............... 3
4. Term.............................................................. 7
5. Construction or Remodeling........................................ 7
6. Your Organization, Operation and Ownership........................ 7
7. Your Covenants.................................................... 8
8. Principal Operator............................................... 10
9. Default and Termination.......................................... 11
10. Assignment or Transfer........................................... 13
11. No Grant of Franchise or Franchise Rights........................ 14
12. Notices.......................................................... 14
13. Independent Contractor; Indemnification.......................... 15
14. Enforcement...................................................... 16
15. Acknowledgements................................................. 20
16. Miscellaneous.................................................... 21
</TABLE>
(i)
<PAGE>
DEVELOPMENT AGREEMENT
---------------------
THIS DEVELOPMENT AGREEMENT ("Agreement") is made and entered into this
___ day of November, 1998, by and between PAPA JOHN'S INTERNATIONAL, INC., a
Delaware corporation ("we", "us" or "Papa John's"), and PJ America, Inc., a
Delaware corporation ("you"). If you are a corporation, limited liability
company or partnership, certain provisions of the Agreement also apply to your
owners and will be noted.
RECITALS:
--------
A. We and our Affiliates (defined below) have expended time, money and
effort to develop a unique system for operating retail restaurants devoted
primarily to carry-out and delivery of pizza and other food items. The chain of
current and future Papa John's restaurants are referred to herein as the "Papa
John's Chain" or the "Chain".
B. The Chain is characterized by a unique system which includes special
recipes and menu items; distinctive design, decor, color scheme and furnishings;
software and programs; standards, specifications and procedures for operations;
procedures for quality control; training assistance; and advertising and
promotional programs all of which we may improve, amend and further develop from
time to time (the "System").
C. We identify our goods and services with certain service marks, trade
names and trademarks, including but not limited to, "Papa John's", "Papa John's
Pizza," "Pizza Papa John's Delivering the Perfect Pizza!" and "Better
Ingredients. Better Pizza." as well as certain other trademarks, service
marks, slogans, logos and emblems that have been and may be designated for use
in connection with the System from time to time (the "Marks").
<PAGE>
D. You desire to obtain certain rights to develop one or multiple Papa
John's Pizza restaurant(s) in the "Development Area" (as defined below) in
accordance with the terms of this Agreement.
E. We have agreed to grant you such rights;
NOW, THEREFORE, the parties agree as follows:
1. Grant.
-----
(a) Subject to the terms and conditions of this Agreement and your
continuing faithful performance, we hereby grant to you the right and obligation
to establish 36 Papa John's restaurant(s) (at specific locations we approve) in
the areas specified on attached Exhibit A. (The Papa John's restaurants that you
develop pursuant to this Agreement are collectively referred to as the
"Restaurants" and individually as a "Restaurant"; the areas specified on Exhibit
A are collectively referred to as the "Development Area"). Notwithstanding the
foregoing, enclosed malls, institutions (such as hospitals or schools),
airports, parks (including theme parks), and sports arenas shall be excluded
from the Development Area unless otherwise agreed by us in writing, and absent
such agreement, we may open Papa John's restaurants, or franchise the right to
open Papa John's restaurants to other persons at any of these locations,
regardless of where they are located, provided, no delivery service will be
permitted from any such location.
(b) Each Restaurant shall be established and operated pursuant to a
separate "Franchise Agreement" to be entered into between you and us. As used
herein, the term "Franchise Agreement" shall mean the form of Papa John's
Franchise Agreement (for the initial Restaurant) or Short Form Franchise
Agreement (for each subsequent Restaurant) to be executed for each Restaurant
developed under this Agreement and all attachments and exhibits thereto.
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<PAGE>
(c) Except as may be otherwise provided herein or in the Franchise
Agreements, we shall not locate, nor license another to locate, a Papa John's
restaurant in the Development Area during the "Term" (as defined in Section 4).
(d) This Agreement is not a franchise agreement and we do not grant
you any franchise rights or other rights to use the Marks or System under this
Agreement.
(e) You have no right to license or subfranchise others to use the
Marks or the System, or to enter into any agreement with respect to the Marks or
System.
2. Development Fee. You have paid to us a development fee of One Hundred
Eighty Thousand Dollars ($180,000) ("Development Fee") (i.e. an aggregte of
Five Thousand Dollars ($5,000) for each Restaurant to be developed), receipt of
which we acknowledge. The Development Fee was fully earned by us when paid, is
non-refundable and is not contingent upon our rendering any further performance.
The Development Fee is in consideration of, among other things, the development
rights granted to you, the reservation of the Development Area, the development
opportunities lost or deferred as a result of the rights granted to you in this
Agreement and the administrative and other expenses that we have incurred.
However, $5,000 of the Development Fee will be credited against each Initial
Franchise Fee at the time it is paid, as provided in Section 3.(f).
3. Development of Restaurants; Schedule for Completion.
---------------------------------------------------
(a) You shall have the number of Restaurants open and operating
within the time frame set forth in subsection 3.(e). below, and you shall
exercise each such development right only at locations that we have approved
within the Development Area.
(b) With respect to each proposed location, you shall submit a
completed site evaluation form, together with such other information and
materials as we may reasonably request. We shall have 30 days after receipt of
such information to accept or reject each proposed location.
-3-
<PAGE>
If we fail to respond within such 30 day period, the location submitted by you
shall be deemed to be approved. We will not unreasonably withhold our approval
of a location. In approving or disapproving any proposed site, we will consider
such matters as we deem material, including, without limitation, demographic
characteristics of the proposed site, traffic patterns, parking, the predominant
character of the neighborhood, competition from other businesses providing
similar services within the area (including other Papa John's Restaurants), the
proximity to other businesses, the rights granted to our other franchisees, the
nature of other businesses in proximity to the site, and other commercial
characteristics (including the purchase price or rental obligations and other
lease terms for the proposed site) and the size of the premises, appearance, and
other physical characteristics of the proposed site. Approval of a site by us
does not constitute an assurance, representation or warranty of any kind,
expressed or implied, as to the successful operation of a Papa John's
Restaurant, or for any other purpose. Our approval of a site indicates only that
we believe the site complies with acceptable minimum criteria that we establish
solely for our purposes as of the time period encompassing the evaluation. You
acknowledge that application of criteria that have been effective with respect
to other sites and premises may not be predictive of potential for all sites.
Further, demographic and/or economic factors included in our criteria could
change and other relevant factors that might alter the potential of a site may
be excluded from our criteria. The uncertainty and instability of such criteria
are beyond our control. We are not responsible if a site that we approve fails
to meet your expectations as to potential revenue or operational criteria or for
your failure to locate the required number of suitable sites in the Development
Area. You further acknowledge and agree that your acceptance of a Franchise for
the operation of a Papa John's Restaurant at a site is based on your own
independent investigation of the suitability of a site. Any proposed lease shall
include an addendum in the form of Exhibit A to the Franchise Agreement, or
shall contain terms and conditions substantially similar to those contained in
Exhibit A to the Franchise Agreement. Any changes in the language set forth in
Exhibit A must be approved by us in advance in writing.
(c) We shall deliver the Franchise Agreement to you within 20 days
after you provide the address and telephone number for an approved location that
you have leased or
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<PAGE>
purchased. The Franchise Agreement for such location must be signed by you and
submitted to us along with payment of the initial franchise fee within 10 days
after it is delivered to you.
(d) The approval of a location and the delivery of a Franchise
Agreement by us shall be conditioned upon a determination by us, in our
reasonable judgment, that:
(i) you have the financial and operational capacity to develop
and operate the Restaurant;
(ii) the site that you propose for the Restaurant is within the
Development Area and is a suitable site based upon criteria that we establish
from time to time; and
(iii) you and your owners are in compliance with this Agreement
and all Franchise Agreements executed pursuant to this Agreement.
(e) Notwithstanding any provision of any Franchise Agreement entered
into between us and you, you shall exercise each development right as follows:
DEVELOPMENT SCHEDULE
--------------------
<TABLE>
<CAPTION>
Dates on Which Each Cumulative Number of Restaurants
Restaurant Shall be Open to be open and operating*
------------------------ ---------------------------------
<S> <C>
December 15, 1998 1
December 15, 1998 2
March 15, 1999 3
June 15, 1999 4
September 15, 1999 5
December 15, 1999 6
February 1, 2000 7
March 15, 2000 8
June 15, 2000 9
</TABLE>
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<PAGE>
August 1, 2000 10
September 15, 2000 11
Cumulative Number of
Dates on Which Each Restaurants to be Open
Restaurant Shall be Open and Operating*
------------------------ ----------------------
November 1, 2000 12
December 15, 2000 13
February 1, 2001 14
March 15, 2001 15
June 15, 2001 16 10
August 1, 2001 17
September 15, 2001 18
November 1, 2001 19
December 15, 2001 20
February 1, 2002 21
March 15, 2002 22
June 15, 2002 23
August 1, 2002 24
September 15, 2002 25
November 1, 2002 26
December 15, 2002 27
February 1, 2003 28
March 15, 2003 29
June 15, 2003 30
August 1, 2003 31
September 15, 2003 32
November 1, 2003 33
December 15, 2003 34
February 1, 2004 35
March 15, 2004 36
[* - Includes only those Restaurants to be developed pursuant to this
Development Agreement.]
(f) The Initial Franchise Fee to be paid by you for each Restaurant
shall be $20,000; provided that $5,000 of the Development Fee shall be credited
against the Initial Franchise Fee. The net amount of the Initial Franchise Fee
($15,000) shall be paid at the time each Franchise Agreement is executed.
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(g) It shall be your responsibility to ensure that each Restaurant is
constructed or remodeled, and equipped and operated in compliance with all laws,
ordinances and governmental rules and regulations and the Franchise Agreement,
and you shall obtain all necessary permits and licenses relating thereto.
4. Term. Unless sooner terminated as provided in this Agreement, this
Agreement shall expire on the earlier to occur of: (a) the date on which all
the Restaurants have been developed, or (b) 12:00 midnight on the last date set
forth on the Development Schedule (the "Term"). Upon the termination or
expiration of this Agreement, all unexercised development rights shall expire.
5. Construction or Remodeling. You shall, at your own expense, construct
or remodel the Restaurant at each location in accordance with the then-current
specifications and standards established for the System and the terms of the
Franchise Agreement. You shall allow us and our agents and employees access to
all areas of the premises of each Restaurant at such times as we or they may
reasonably request and you shall cooperate fully with us and our agents and
employees in preparing specifications applicable to the location of each
Restaurant to be developed hereunder. However, it shall be your obligation to
have plans drawn showing the layout of all equipment, signs and leasehold
improvements, and such plans shall be subject to our approval, which approval
shall not be unreasonably withheld. You shall not begin construction or
remodeling on any Restaurant until the Franchise Agreement has been fully signed
and we have approved the plans for such Restaurant.
6. Your Organization, Operation and Ownership. If you are a corporation,
partnership, limited liability company or other entity:
(a) If we request from time to time, you shall furnish us with your
Articles of Incorporation, Articles of Organization, Operating Agreement, By-
Laws and other governing documents (and any amendments or modifications
thereof), minutes and resolutions and all
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agreements or other documents, records and information pertaining to your
existence and operation.
(b) You shall confine your business activities exclusively to the
establishment, management and operation of Papa John's restaurants pursuant to
agreements with us.
(c) You shall, at the same time you execute this Agreement, and at
such other times as we may request, disclose the name and address of each person
or entity owning a beneficial interest in you, and you shall not issue any
additional securities, nor allow the "transfer" (as defined in Section 10) of
any of your outstanding securities, except as provided in Section 10.
(d) You shall at all times comply with all applicable laws,
ordinances, rules and regulations of governmental bodies.
(e) You shall cause all persons or entities owning any interest in you
to sign the Owner Agreement in the form we provide.
7. Your Covenants.
--------------
(a) Covenant Not-to-Compete. You covenant and agree that during the
Term and for a period of two years after the expiration or termination of this
Agreement, regardless of the cause for such expiration or termination (the
"Restricted Period"), you shall not, anywhere within either: (1) the boundaries
of the Development Area including, for purposes of this Section 7 only, any
locations excluded from the Development Area by the operation of Section 1.(a);
or (2) a 10-mile radius of any business location at which you, we or our
Affiliate or our franchisee then conducts a Papa John's business, engage in any
of the following activities:
(i) directly or indirectly enter into the employ of, render any
service to or act in concert with any person, partnership, limited liability
company, corporation or other entity that owns, operates, manages, franchises or
licenses any business that (A) sells pizza or
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other non-pizza products (excluding soft drinks) that are the same as those sold
by Papa John's restaurants on a delivery or carry-out basis, including, without
limitation, business formats such as Domino's, Pizza Hut, Mr. Gatti's, Sbarro
and Little Caesars, or (B) derives 20% or more of its gross revenues, at the
retail level, from the sale of pre-cooked, ready-to-eat food products on a
delivery basis (a "Competitive Business"); or
(ii) directly or indirectly engage in any such Competitive
Business on your own account; or
(ii) become interested in any such Competitive Business directly
or indirectly as a partner, member, shareholder, principal, agent, consultant or
in any other relationship or capacity; provided, that the purchase of a publicly
traded security of a corporation engaged in such business or service shall not
in itself be deemed violative of this Agreement so long as you do not own,
directly or indirectly, more than 1% of the securities of such corporation.
To the extent required by the laws of the state in which the Restaurants are to
be developed, the duration or the geographic areas included within the foregoing
covenants, or both, shall be deemed amended in accordance with Section 7.(f).
(b) Appropriation and Disclosure of Information. Except as permitted
by the Franchise Agreement, you will not at any time use, copy or duplicate the
System or any aspect thereof, or any of our trade secrets, recipes, methods of
operation, processes, formulas, advertising, marketing, designs, trade dress,
plans, know-how or other proprietary ideas or information, nor will you convey,
divulge, make available or communicate such information to any third party or
assist others in using, copying or duplicating any of the foregoing.
(c) Infringement. You will not at any time commit any act that would
infringe upon or impair the value of the System or the Marks, nor will you
engage in any business or market any product or service under a trade-name,
trademark, service mark, logo or design that is confusingly or deceptively
similar to any of the Marks.
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of this Agreement, you will not solicit, entice or induce, directly or
indirectly, any employee of us or an Affiliate or our franchisees to leave their
employment to work with you or with any person or entity with whom you are or
become affiliated.
(e) Reasonableness of Scope and Duration. You agree that the covenants
and agreements contained herein are, taken as a whole, reasonable with respect
to the activities covered and their geographic scope and duration, and you shall
not raise any issue of the reasonableness of the areas, activities or duration
of any such covenants in any proceeding to enforce any such covenants. You
acknowledge and agree that you have other skills and resources and that the
restrictions contained in this Section 7 will not hinder your activities or
ability to make a living either under this Agreement or in general.
(f) Enforceability. You agree that we may not be adequately
compensated by damages for a breach by you of any of the covenants and
agreements contained in this Section, and that we shall, in addition to all
other remedies, be entitled to injunctive relief and specific performance. The
covenants and agreements contained in this Section shall be construed as
separate covenants and agreements, and if any court shall finally determine that
the restraints provided for in any such covenants and agreements are too broad
as to the area, activity or time covered, said area, activity or time covered
may be reduced to whatever extent the court deems reasonable, and such covenants
and agreements shall be enforced as to such reduced area, activity or time.
8. Principal Operator. You shall designate an individual to serve as your
"Principal Operator." The Principal Operator shall meet the following
qualifications:
(a) The Principal Operator shall own at least a 5% equity interest in
you; provided that you shall not be in default of this requirement if the
Principal Operator is entitled to a bonus of not less than 5% of the net
profits of the Restaurant, payable after the end of each Period (as defined in
the Franchise Agreement), and also has the right to acquire not less than 5%
equity interest in you within 12 months of his or her hire date, which rights
shall be evidenced by
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a written agreement between the Principal Operator and you. You shall provide us
with a copy of any such agreement upon request. Once the Principal Operator has
acquired an equity interest in you, he or she must continue to own that interest
(or a greater interest) during the entire period he or she serves as the
Principal Operator and must comply with Section 6.(e) of this Agreement.
(b) The Principal Operator shall devote full time and best efforts to
the supervision and conduct of the development and operation of the Restaurants
comtemplated under this Agreement and shall agree to be bound by the
confidentiality and non-competition provisions of the Owner Agreement. At such
time as the Principal Operator becomes an owner of an interest in you, he or she
must agree to be bound by all provisions of the Owner Agreement.
(c) The Principal Operator shall be a person we reasonably approve who
shall successfully complete our initial training requirements and who shall
participate in and successfully complete all additional training as we may
reasonably designate.
If, at any time or for any reason, the Principal Operator no longer
qualifies to act as such, you shall promptly designate another Principal
Operator subject to the same qualifications listed above. You shall immediately
notify us of the termination of the Principal Operator's employment with you,
whether voluntary or involuntary.
9. Default and Termination.
(a) Automatic Termination. You shall be in default under this
Agreement, and this Agreement and all rights granted in it shall automatically
terminate without notice to you, if: (i) you make a general assignment for the
benefit of creditors or a petition in bankruptcy is filed by you; or (ii) such a
petition is filed against and not opposed by you; or (iii) you are adjudicated
as bankrupt or insolvent; or (iv) a bill in equity or other proceeding is filed
for the appointment of a receiver or other custodian for your business or assets
is filed and consented to by you; or (v) a receiver or other custodian
(permanent or temporary) of your assets or property, or any part thereof, is
appointed by any court of competent jurisdiction; or (vi) proceedings for
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a composition with creditors under any state or federal law are instituted by
or against you; or (vii) a final judgment remains unsatisfied or of record
for thirty (30) days or longer (unless supersedeas bond is filed); or (viii)
you are dissolved; or (ix) any portion of your interest in any Papa John's
franchise becomes subject to an attachment, garnishment, levy or seizure by any
creditor or any other person claiming against or in your rights; or (x)
execution is levied against your business or property; or (xi) the real or
personal property of any Restaurant shall be sold after levy thereupon by any
sheriff, marshal, or constable.
(b) Without Notice. You shall be in default under this Agreement, and
we may, at our option, terminate this Agreement and all rights granted under it
without affording you any opportunity to cure such default, effective upon the
earlier of (1) your receipt of the notice of termination, or (2) five days after
mailing of such notice by us, upon the occurrence of any of the following
events:
(i) you fail to strictly comply with the development schedule set
forth in Section 3;
(ii) any Franchise Agreement entered into pursuant to this
Agreement or otherwise is terminated as a result of your breach or default;
(iii) you make or attempt to make any transfer, whether voluntary
or involuntary, of this Agreement or any interest herein, or of any rights or
obligations arising under this Agreement, or of any interest in you, or of any
material portion of your assets, without our prior written consent, except as
otherwise provided under the Franchise Agreement; or
(iv) you fail to comply with any of your covenants set forth in
Section 7 of this Agreement.
(c) With Notice. For any other breach or default under this
Agreement, we will provide you with written notice of default and 15 days to
cure or, if a default cannot
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reasonably be cured within 15 days, to initiate within that time substantial and
continuing action to cure such default and to provide us with evidence of such
actions. If the defaults specified in such notice are not cured within the 15
day period, or if substantial and continuing action to cure has not been
initiated, we may, at our option, terminate this Development Agreement and all
rights granted to you under it by giving written notice of such termination to
you. The notice of termination shall be effective on the earlier of (i) the date
of your receipt of the notice or (ii) five days after the mailing of such
notice by us.
(d) Effect of Termination. Upon termination of this Agreement, all
your rights under it shall terminate and you shall have no further right to
establish any Restaurants. In addition, upon termination of this Agreement, we
shall have the right to open and operate, or to franchise others to open and
operate, Papa John's restaurants anywhere within the Development Area, except
that we may not locate or franchise another to locate a Papa John's restaurant
within the "Territory" provided for in any Franchise Agreement that remains in
effect after the date of termination.
10. Assignment or Transfer.
(a) Transfer by Us. We may transfer this Agreement or any portion of
it, or any or all of our rights, obligations or interests under it, without
restriction. Upon any transfer or assignment of this Agreement by us, we shall
be released from all obligations and liabilities arising or accruing in
connection with this Agreement after the date of such transfer or assignment.
(b) Transfer by You. This Agreement, and your rights and obligations
under it, are and shall remain personal to you. Any proposed transfer by you or
any of your owners (regardless of the form of transfer) shall be subject to the
same terms and conditions contained in the Franchise Agreement. As used herein,
the term "transfer" shall mean any sale, assignment, gift, pledge, mortgage or
any other encumbrance, transfer by bankruptcy, transfer by judicial order,
merger, consolidation, share exchange, transfer by operation of law or
otherwise, whether
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direct or indirect, voluntary or involuntary, of this Agreement or any interest
in it, or any rights or obligations arising under it, or of any material portion
of your assets, or of any interest in you.
11. No Grant of Franchise or Franchise Rights. This Agreement does not
grant you a franchise or any rights of a Papa John's franchisee. To the fullest
extent permissible by law, you waive the applicability of any law that would
constitute this Agreement or any rights granted under it as a franchise
agreement or as granting any franchise rights.
12. Notices. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be given (a) by personal delivery, (b) provided such notice,
request, demand or communication is actually received by the party to which it
is addressed in the ordinary course of delivery, by deposit in the United States
mail, postage prepaid, or (c) by registered or certified mail, return receipt
requested, postage prepaid, or by delivery to a nationally-recognized overnight
courier service, in each case, addressed as follows, or to such other person or
entity as either party shall designate by notice to the other in accordance
herewith:
Us: If by Mail:
P.O. Box 99900
Louisville, Kentucky 40269-0900
ATTN: General Counsel
If by Courier or Personal Delivery:
10801 Electron Drive, Suite 100
Louisville, Kentucky 40299-3880
ATTN: General Counsel
You: P.O. Box 611165
Birmingham, Alabama 35261-1165
ATTN: Douglas S. Stephens
Except as otherwise provided herein, a notice shall be deemed to have been
given on the date of personal delivery to a party or the date deposited in the
United States mail or with a nationally-recognized overnight courier.
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13. Independent Contractor; Indemnification.
(a) Independent Contractor. It is understood and agreed by the parties
that this Agreement creates only a contractual relationship between the parties
subject to the normal rules of contract law. This Agreement does not create a
fiduciary relationship between us and you and you are and shall remain an
independent contractor. Nothing in this Agreement is intended to constitute
either party an agent, legal representative, subsidiary, joint venturer,
partner, employee, or servant of the other for any purpose whatsoever. You agree
to hold yourself out to the public as an independent contractor, separate and
apart from us. You agree that you shall not make any contract, agreement,
warranty, or representation on our behalf without our prior written consent, and
you agree that you shall not incur any debt or other obligation in our name.
This Agreement shall not be deemed to confer any rights or benefits to any
person or entity not expressly named herein.
(b) Business Management. You agree and acknowledge that: (i) we will
have no responsibility for the day-to-day operations of any Restaurant developed
under this Agreement or the management of your business; and (ii) you shall
independently control the operation of your business and the results of your
operations will depend almost exclusively on your business acumen and
promotional and managerial efforts.
(c) Indemnification. We shall not be liable by reason of any act or
omission of you in your development, construction or conduct of the Restaurants
or for any claim, cause of action or judgement arising therefrom against you or
us. You agree to hold harmless, defend and indemnify us and our affiliates,
officers, directors, agents, and employees, from and against any and all losses,
expenses, judgments, claims, attorney fees and damages arising out of or in
connection with any claim or cause of action in which we shall be a named
defendant and that arises, directly or indirectly, out of the operation of, or
in connection with, your Restaurants, other than a claim resulting directly from
our negligence.
14. Enforcement.
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(a) ARBITRATION. EXCEPT FOR CONTROVERSIES, DISPUTES OR CLAIMS RELATED
TO OR BASED ON YOUR USE OF THE MARKS AFTER THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT OR, AT OUR OPTION, YOUR VIOLATION OF ANY PROVISION OF SECTION 7
HEREOF, ALL CONTROVERSIES, DISPUTES OR CLAIMS BETWEEN US (INCLUDING OUR
AFFILIATES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS OR EMPLOYEES) AND YOU
(INCLUDING YOUR OWNERS, GUARANTORS, AFFILIATES AND EMPLOYEES, IF APPLICABLE)
ARISING OUT OF OR RELATED TO:
(i) THIS AGREEMENT OR ANY OTHER AGREEMENT BETWEEN YOU AND US OR
ANY PROVISION OF ANY SUCH AGREEMENT;
(ii) OUR RELATIONSHIP WITH YOU, INCLUDING ISSUES RELATING TO OUR
DECISION TO TERMINATE THAT RELATIONSHIP;
(iii) THE VALIDITY OF THIS AGREEMENT OR ANY OTHER AGREEMENT
BETWEEN YOU AND US OR ANY PROVISION OF ANY SUCH AGREEMENT; OR
(iv) ANY STANDARD, SPECIFICATION OR OPERATING PROCEDURE RELATING
TO THE DEVELOPMENT, ESTABLISHMENT OR OPERATION OF THE RESTAURANTS
WILL BE SUBMITTED FOR BINDING ARBITRATION TO THE LOUISVILLE, KENTUCKY
OFFICE OF THE AMERICAN ARBITRATION ASSOCIATION ON DEMAND OF EITHER PARTY. SUCH
ARBITRATION PROCEEDING WILL BE CONDUCTED IN LOUISVILLE, KENTUCKY AND, EXCEPT AS
OTHERWISE PROVIDED IN THIS AGREEMENT, WILL BE HEARD BY ONE ARBITRATOR IN
ACCORDANCE WITH THE THEN CURRENT FRANCHISING ARBITRATION RULES,
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IF ANY, OTHERWISE THE THEN CURRENT COMMERCIAL ARBITRATION RULES OF THE AMERICAN
ARBITRATION ASSOCIATION. ALL MATTERS RELATING TO ARBITRATION WILL BE GOVERNED BY
THE FEDERAL ARBITRATION ACT (9 U.S.C. (S)(S) 1 ET SEQ.) AND NOT BY ANY STATE
ARBITRATION LAW.
THE ARBITRATOR WILL HAVE THE RIGHT TO AWARD OR INCLUDE IN THE AWARD ANY
RELIEF THAT THE ARBITRATOR DEEMS PROPER IN THE CIRCUMSTANCES, INCLUDING, WITHOUT
LIMITATION, MONEY DAMAGES (WITH INTEREST ON UNPAID AMOUNTS FROM THE DATE DUE),
SPECIFIC PERFORMANCE, INJUNCTIVE RELIEF AND ATTORNEYS' FEES AND COSTS, PROVIDED
THAT THE ARBITRATOR WILL NOT HAVE THE RIGHT TO DECLARE ANY MARK GENERIC OR
OTHERWISE INVALID OR, EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, TO AWARD
EXEMPLARY OR PUNITIVE DAMAGES. THE AWARD AND DECISION OF THE ARBITRATOR WILL BE
CONCLUSIVE AND BINDING UPON ALL PARTIES HERETO, AND JUDGMENT UPON THE AWARD MAY
BE ENTERED IN ANY COURT OF COMPETENT JURISDICTION.
WE AND YOU AGREE TO BE BOUND BY THE PROVISIONS OF ANY LIMITATION ON THE
PERIOD OF TIME IN WHICH CLAIMS MUST BE BROUGHT UNDER APPLICABLE LAW OR THIS
AGREEMENT, WHICHEVER EXPIRES EARLIER. WE AND YOU FURTHER AGREE THAT, IN
CONNECTION WITH ANY SUCH ARBITRATION PROCEEDING, EACH PARTY MUST SUBMIT OR FILE
ANY CLAIM THAT WOULD CONSTITUTE A COMPULSORY COUNTERCLAIM (AS DEFINED BY RULE 13
OF THE FEDERAL RULES OF CIVIL PROCEDURE) WITHIN THE SAME PROCEEDING AS THE CLAIM
TO WHICH IT RELATES. ANY SUCH CLAIM THAT IS NOT SUBMITTED OR FILED AS DESCRIBED
ABOVE WILL BE FOREVER BARRED.
WE AND YOU AGREE THAT ARBITRATION WILL BE CONDUCTED ON AN INDIVIDUAL, NOT A
CLASS-WIDE, BASIS, AND THAT AN ARBITRATION
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PROCEEDING BETWEEN US (INCLUDING OUR AFFILIATES, SHAREHOLDERS, OFFICERS,
DIRECTORS, AGENTS OR EMPLOYEES) AND YOU (INCLUDING YOUR OWNERS, GUARANTORS,
AFFILIATES AND EMPLOYEES, IF APPLICABLE) MAY NOT BE CONSOLIDATED WITH ANY OTHER
ARBITRATION PROCEEDING BETWEEN US AND ANY OTHER PERSON, CORPORATION, LIMITED
LIABILITY COMPANY OR PARTNERSHIP.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS SECTION, WE AND
YOU EACH HAVE THE RIGHT IN A PROPER CASE TO OBTAIN TEMPORARY RESTRAINING ORDERS
AND TEMPORARY OR PRELIMINARY INJUNCTIVE RELIEF FROM A COURT OF COMPETENT
JURISDICTION; PROVIDED, THAT WE AND YOU MUST CONTEMPORANEOUSLY SUBMIT
OUR DISPUTE FOR ARBITRATION ON THE MERITS AS PROVIDED HEREIN EXCEPT AS OTHERWISE
PROVIDED IN THE FIRST PARAGRAPH OF THIS SECTION 14.(a).
THE PROVISIONS OF THIS SECTION ARE INTENDED TO BENEFIT AND BIND CERTAIN
THIRD PARTY NON-SIGNATORIES AND WILL CONTINUE IN FULL FORCE AND EFFECT
SUBSEQUENT TO AND NOTWITHSTANDING THE EXPIRATION OR TERMINATION OF THIS
AGREEMENT.
(b) GOVERNING LAW. ALL MATTERS RELATING TO ARBITRATION WILL BE
GOVERNED BY THE FEDERAL ARBITRATION ACT (9 U.S.C. (S)(S)1 ET SEQ). EXCEPT TO
THE EXTENT GOVERNED BY THE FEDERAL ARBITRATION ACT, THE UNITED STATES TRADEMARK
ACT OF 1946 (LANHAM ACT, 15 U.S.C. SECTIONS 1051 ET SEQ.) OR OTHER FEDERAL LAW,
THIS AGREEMENT AND ALL CLAIMS ARISING FROM THE RELATIONSHIP BETWEEN US AND YOU
WILL BE GOVERNED BY THE LAWS OF THE STATE OF KENTUCKY WITHOUT REGARD TO ITS
CONFLICT OF LAWS PRINCIPLES.
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(c) CONSENT TO JURISDICTION AND VENUE. YOU AND YOUR OWNERS AGREE THAT
ALL JUDICIAL ACTIONS BROUGHT BY US AGAINST YOU OR YOUR OWNERS OR BY YOU OR YOUR
OWNERS AGAINST US OR OUR SUBSIDIARIES, SHAREHOLDERS, OFFICERS, DIRECTORS, AGENTS
OR EMPLOYEES MUST BE BROUGHT IN A COURT OF COMPETENT JURISDICTION IN JEFFERSON
COUNTY, KENTUCKY OR FEDERAL DISTRICT COURT FOR THE WESTERN DISTRICT OF KENTUCKY
AND YOU (AND EACH OWNER) IRREVOCABLY SUBMIT TO THE JURISDICTION OF SUCH COURTS
AND WAIVE ANY OBJECTION YOU, HE OR SHE MAY HAVE TO EITHER THE JURISDICTION OF OR
VENUE IN SUCH COURTS. NOTWITHSTANDING THE FOREGOING, WE MAY BRING AN ACTION TO
OBTAIN A RESTRAINING ORDER OR TEMPORARY OR PRELIMINARY INJUNCTION, OR ENFORCE AN
ARBITRATION AWARD, IN ANY FEDERAL OR STATE COURT OF GENERAL JURISDICTION IN THE
STATE IN WHICH YOU RESIDE OR IN WHICH THE RESTAURANTS ARE LOCATED.
(d) WAIVER OF PUNITIVE DAMAGES. EXCEPT WITH RESPECT TO YOUR
OBLIGATION TO INDEMNIFY US PURSUANT TO SECTION 13 AND CLAIMS WE BRING AGAINST
YOU FOR YOUR UNAUTHORIZED USE OR DISCLOSURE OF ANY CONFIDENTIAL INFORMATION, WE
AND YOU AND YOUR OWNERS WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW ANY RIGHT
TO OR CLAIM FOR ANY PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER AND AGREE
THAT, IN THE EVENT OF A DISPUTE BETWEEN US, THE PARTY MAKING A CLAIM WILL BE
LIMITED TO EQUITABLE RELIEF AND TO RECOVERY OF ANY ACTUAL DAMAGES IT SUSTAINS.
(e) WAIVER OF JURY TRIAL. WE AND YOU IRREVOCABLY WAIVE TRIAL BY JURY
IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT
BY EITHER OF US.
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(f) LIMITATIONS OF CLAIMS. EXCEPT FOR CLAIMS BROUGHT BY US WITH
REGARD TO YOUR OBLIGATIONS UNDER SECTIONS 7.(a), 7.(b) AND 7.(c), AND TO
INDEMNIFY US PURSUANT TO SECTION 13, ANY AND ALL CLAIMS ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE RELATIONSHIP OF YOU AND US PURSUANT TO THIS
AGREEMENT WILL BE BARRED UNLESS AN ACTION IS COMMENCED WITHIN ONE (1) YEAR FROM
THE DATE ON WHICH THE ACT OR EVENT GIVING RISE TO THE CLAIM OCCURRED, OR ONE (1)
YEAR FROM THE DATE ON WHICH YOU OR WE KNEW OR SHOULD HAVE KNOWN, IN THE EXERCISE
OF REASONABLE DILIGENCE, OF THE FACTS GIVING RISE TO SUCH CLAIMS, WHICHEVER
OCCURS FIRST.
(g) Costs, Expenses and Attorneys' Fees. Except as provided in Section
13, each party shall pay its own costs, expenses and attorneys' fees in any
action, claim, suit or proceeding arising out of this Agreement or the franchise
relationship of the parties.
15. Acknowledgements.
----------------
Your Representations. You hereby acknowledge and represent that:
--------------------
(a) All information submitted to us by you or those owning an interest
in you, including all applications, financial statements and other documents and
information, is true and correct in all respects and that it does not omit any
statement or item of material fact necessary to make the statements made therein
not false or misleading;
(b) We have not represented that (i) you will earn, can earn, or are
likely to earn a gross or net profit, (ii) that we have knowledge of the
relevant market, or (iii) the market demand will enable you to earn a profit
from the Franchise;
(c) You have read and understood this Agreement and the disclosure
document entitled "Papa John's Franchise Offering Circular" (the "Offering
Circular") required by the
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Federal Trade Commission or the state in which the Development Area is located.
You understand that we make no representation or warranty regarding your
relevant market or the profitability of business operations under the System and
that no representations have been made by us, or by any of our Affiliates or our
or their officers, directors, shareholders, employees or agents, that are
contrary to or inconsistent with the terms of this Agreement or with the
statements made in the Offering Circular that accompanied a copy of this
Agreement;
(d) You accept the terms, conditions and covenants contained in this
Agreement as being reasonable and necessary to maintain our standards of
quality, service and uniformity and in order to protect and preserve the
goodwill of the Marks. You acknowledge that other franchisees of ours have been
or will be granted franchises at different times and in different situations.
You further acknowledge that the provisions of the franchise agreements pursuant
to which such franchises were granted may vary materially from those contained
in this Agreement and that your obligation arising hereunder may differ
substantially from other franchisees; and
(e) You recognize that the System may evolve and change over time and
that the Franchise involves an investment of substantial risk and its success is
dependent primarily upon your business acumen and efforts and other factors
beyond our control. You have conducted an independent investigation of the
Franchise and have had ample time and opportunity to consult with independent
professional advisors (lawyers, accountants, etc.), and have not received or
relied upon any express or implied guarantee as to potential volumes, revenues,
profits or success of the business venture contemplated by the Franchise.
16 Miscellaneous.
(a) Severability. You agree to be bound to the maximum extent
permitted by law that is subsumed within the terms of any provision hereof, as
though it were separately articulated in and made a part of this Agreement, that
may result from the striking of any provision hereof by a court, or that a court
holds to be unenforceable in a final decision to which we are a party, or that
may result from reducing the scope of any provision to the extent required to
comply
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with a court order or with any state or federal law, whether currently in
effect or subsequently enacted.
(b) Construction. All references herein to the masculine, neuter, or
singular shall be construed to include the masculine, feminine, neuter, or
plural, as the case may require. All acknowledgements, warranties,
representations, covenants, agreements, and obligations herein made or
undertaken by you shall be deemed jointly and severally undertaken by all those
executing this Agreement as you. During any period in which any of the covenants
in Section 7 is being breached or violated, including any period in which either
of the parties seeks judicial enforcement, interpretation or modification of any
such covenant, and all appeals thereof, the restricted period set forth therein
shall toll and be suspended.
(c) Entire Agreement. This Agreement, the documents incorporated
herein by reference and the Exhibit attached hereto, constitute the entire
agreement between the parties, and all prior understandings or agreements
concerning the subject matter hereof are canceled and superseded by this
Agreement. The Exhibit to this Agreement is incorporated herein by reference and
made a part hereof as if set out in full herein.
(d) Affiliate. As used in this Agreement, the term "Affiliate" shall
mean any person or entity that is owned or controlled by us or which owns or
controls us or is under common control with us, either directly or through one
or more intermediaries.
(e) Amendments. Except for those permitted to be made unilaterally by
us, no supplement, amendment or variation of the terms of this Agreement shall
be valid unless made in writing and signed by the parties hereto.
(f) Waivers. No failure by us to exercise any right given to us
hereunder, or to insist upon strict compliance by you with any obligation,
agreement or undertaking hereunder, and no custom or practice of the parties at
variance with the terms hereof shall constitute a waiver of our right to demand
full and exact compliance by you with the terms hereof. Waiver by us of
-22-
<PAGE>
any particular default by you shall not affect or impair our rights with
respect to any subsequent default of the same or of a different nature, nor
shall any delay or omission of us to exercise any right arising from such
default affect or impair our rights as to such default or any subsequent
default.
(g) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(h) Headings. The headings used in this Agreement are for
convenience only, and the paragraphs shall be interpreted as if such headings
were omitted.
(i) Time of Essence. You agree and acknowledge that time is of the
essence with regard to your obligations hereunder, and that all of your
obligations are material to us and this Agreement.
IN WITNESS WHEREOF, the parties have signed this Development Agreement as
of the date written above.
PAPA JOHN'S INTERNATIONAL, INC.
By:
------------------------------------------
Richard J. Emmett, Vice President
PJ AMERICA, INC.
By:
------------------------------------------
Douglas S. Stephens, President
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<PAGE>
PAPA JOHN'S
DEVELOPMENT AGREEMENT
EXHIBIT A
DEVELOPMENT AREA
----------------
November __, 1998
The areas encompassed on the attached map entitled "PJ AMERICA, INC. DEV
ID# 261-9" shall constitute the "Development Area," as defined in the Papa
John's Development Agreement of even date herewith, by and between PAPA JOHN'S
INTERNATIONAL, INC. and PJ AMERICA, INC. (except for locations expressly
excluded from the Development Area under Section 1.(a) of the Development
Agreement).
NUMBER OF RESTAURANTS TO BE DEVELOPED 36
PAPA JOHN'S INTERNATIONAL, INC.
By:
------------------------------------
Richard J. Emmett, Vice President
PJ AMERICA, INC.
By:
------------------------------------
Douglas S. Stephens, President
<PAGE>
Exhibit 10.34
------------------------------------------------------------
STOCK PURCHASE AGREEMENT
AMONG
PJ AMERICA, INC.,
PJ LOUISIANA, INC.,
AND
------------------------------------------------------------
DOUGLAS S. STEPHENS, ROBERT W. CURTIS, JR.
MICHAEL M. FLEISHMAN, MERIDA SHERMAN,
NICHOLAS SHERMAN, RICHARD F. SHERMAN,
FRANK O. KEENER, AND STEPHEN P. LANGFORD
May 13, 1998
<PAGE>
TABLE OF CONTENTS
Section Page
1. Purchase and Sale of Shares................................................1
1.1 Purchase and Sale of Shares............................................1
1.2 The Closing; Effective Date............................................1
2. Purchase Price; 338 Election; Allocation of Purchase Price.................2
2.1 Purchase Price........................................................2
2.2 Payment of Purchase Price.............................................2
2.3 338 Election; Purchase Price Allocation...............................2
3. Certain Representations and Warranties of Shareholders.....................2
3.1 Title to Shares; Share Restrictions...................................2
3.2 Authority.............................................................2
3.3 Completeness of Statements............................................3
4. Representations and Warranties of the Company and the Shareholders.........3
4.1 Organization and Standing of the Company..............................3
4.2 Subsidiaries..........................................................3
4.3 Authority.............................................................3
4.4 No Violations; Consents...............................................3
4.5 Capitalization; Stock Ownership and Rights............................4
4.6 Financial Statements..................................................4
4.7 Absence of Undisclosed Liability......................................5
4.8 Absence of Certain Events.............................................5
4.9 Properties............................................................7
4.10 Assets Necessary to Business.........................................8
4.11 Bank Accounts, etc...................................................8
4.12 Absence of Other Business Operations; Restrictive Covenants..........8
4.13 Contracts; Contract Status...........................................8
4.14 Copyrights, Trademarks, Trade Names, Etc.............................9
4.15 Current Employees and Compensation; Officers and Directors...........9
4.16 Employee Benefits...................................................10
4.17 Environmental Matters...............................................11
4.18 Indebtedness to or from Officers, Directors, Etc....................12
4.19 Insider Interests...................................................12
4.20 Insurance...........................................................12
4.21 Labor Matters.......................................................12
4.22 Leases..............................................................13
4.23 Licenses and Permits................................................13
4.24 Litigation..........................................................13
4.25 Real Property.......................................................14
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<PAGE>
TABLE OF CONTENTS
Section Page
4.26 Payments............................................................14
4.27 Tax Returns; Tax Elections..........................................14
4.28 Compliance..........................................................16
4.29 Books and Records...................................................16
4.30 Completeness of Statements..........................................16
5. Representations and Warranties of PJAM....................................16
5.1 Incorporation; Corporate Power.......................................16
5.2 Authorization; No Violation..........................................17
6. Covenants of the Parties..................................................17
6.1 Operation of the Company Pending Closing.............................17
6.2 Non-Competition Agreement............................................18
6.3 Release and Resignation..............................................18
6.4 Compliance with Conditions...........................................18
6.5 Payment of Certain Loans.............................................19
6.6 Further Actions......................................................19
6.7 Continuation of Insurance Coverage...................................19
7. Conditions to the Obligations of PJAM.....................................19
7.1 Representations and Warranties Correct...............................19
7.2 Compliance with Covenants............................................20
7.3 Necessary Consents...................................................20
7.4 No Material Adverse Change...........................................20
7.5 No Litigation........................................................20
8. Conditions to Obligations of the Shareholders.............................20
8.1 Representatives and Warranties Correct...............................20
8.2 Compliance with Covenants............................................20
8.3 Necessary Consents...................................................20
9. Termination...............................................................20
9.1 Termination Events...................................................20
9.2 Effect of Termination................................................21
10. Deliveries and Actions Taken at Closing..................................22
10.1 Deliveries by the Shareholders......................................22
10.2 Deliveries by PJAM..................................................22
10.3 Deliveries by PJAM and the Shareholders.............................23
-ii-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C>
11. Survival of Representations and Warranties; Indemnities............... 23
11.1 Survival........................................................ 23
11.2 General Indemnities of the Shareholders......................... 23
11.3 Additional Indemnities of the Shareholders...................... 24
11.4 Indemnity by PJAM............................................... 24
11.5 Exclusive Remedy................................................ 24
11.6 Limitations on Shareholder's Indemnification Obligations........ 25
11.7 Claims Procedure................................................ 25
11.8 Defense of Third Party Claim.................................... 26
11.9 Arbitration..................................................... 27
11.10 Contingent Amount; Certain Agreements of the Parties........... 27
12. Miscellaneous Provisions.............................................. 27
12.1 Appointment of Shareholders' Agents; Actions of
Shareholders Following the Closing.............................. 27
12.2 Expenses........................................................ 28
12.3 Notice.......................................................... 28
12.4 Exhibits; Entire Agreement...................................... 29
12.5 Amendment; Waiver............................................... 29
12.6 Binding Effect; Assignment...................................... 29
12.7 Captions........................................................ 29
12.8 Severability of Provisions...................................... 30
12.9 Confidentiality................................................. 30
12.10 Governing Law.................................................. 30
12.11 Publicity; No Disclosure....................................... 30
12.12 Post-Closing Access............................................ 30
12.13 Counterparts................................................... 31
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
Description Exhibit
<S> <C>
Ownership of Shares....................................................... A
Purchase Price Allocation................................................. B
Equipment, Property and Other Assets...................................... C
Non-Competition Agreements................................................ D
Release Letter............................................................ E
Shareholder Loans......................................................... F
SCHEDULES
Description Schedule
Ownership of Shares....................................................... 3.1
Organization and Good Standing............................................ 4.1
No Violations; Consents................................................... 4.4
Capitalization; Stock Ownership........................................... 4.5
Financial Statements...................................................... 4.6
Liabilities Not Disclosed on Acquisition Balance Sheet.................... 4.7
Absence of Certain Events................................................. 4.8
Properties................................................................ 4.9
Bank Accounts............................................................. 4.11
Absence of Other Business Activities...................................... 4.12
Contracts................................................................. 4.13
Current Employees and Compensation, Directors and Officers................ 4.15
Employee Benefits......................................................... 4.16
Environmental Matters..................................................... 4.17
Indebtedness.............................................................. 4.18
Insider Interests......................................................... 4.19
Insurance................................................................. 4.20
Labor Matters............................................................. 4.21
Leases.................................................................... 4.22
Litigation................................................................ 4.24
Taxes..................................................................... 4.27
Buyer's Required Authorizations........................................... 5.2
</TABLE>
-iv-
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement is entered into as of May 13, 1998, by and
among (i) PJ America, Inc., a Delaware corporation ("PJAM"), (ii) PJ Louisiana,
Inc., a Louisiana corporation ("Company"), and (ii) Douglas S. Stephens, Robert
W. Curtis, Jr. (each an Alabama resident), Michael M. Fleishman, Merida Sherman
(each a Kentucky resident), Nicholas Sherman, Richard F. Sherman (each a Florida
resident), Frank O. Keener (a Tennessee resident), and Stephen P. Langford (an
Indiana resident) (individually, a "Shareholder" and collectively, the
"Shareholders").
Recitals:
A. The Company owns, operates and manages restaurants as a franchisee of Papa
John's International Inc. ("PJI"). The Shareholders own all of the issued and
outstanding capital stock of the Company.
B. PJAM desires to purchase from Shareholders, and Shareholders desire to
sell to PJAM, for the consideration and pursuant to the terms, conditions and
covenants of this Agreement (as defined in Section 12.4), all of the issued and
outstanding capital stock of the Company.
Agreement:
Now, Therefore, the parties hereby agree as follows:
1. Purchase and Sale of Shares.
1.1 Purchase and Sale of Shares. Upon the terms set forth herein, each
Shareholder, individually, agrees to sell, transfer, convey, assign and deliver
to PJAM at the "Closing" (as defined in Section 1.2), and PJAM agrees to
purchase and accept delivery from each of the Shareholders at the Closing, all
the "Shares" (as defined in Section 4.5) owned by such Shareholder.
1.2 The Closing; Effective Date.
(a) The Closing. The closing of the purchase and sale of the Shares
shall take place at the offices of Greenebaum Doll & McDonald, PLLC, 3300
National City Tower, Louisville, Kentucky 40202, 10:00 a.m., local time. The
Closing shall occur on May 12, 1998, if all the conditions set forth in Sections
7.3 and 8.3 have been fulfilled by such date. If all such conditions have not
been fulfilled by such date, then the Closing shall take place on such other
date which is two business days after the party obligated to fulfill such
conditions shall have notified the other party that the last of such conditions
has been satisfied or waived, or such other date as the parties may agree,
provided that the date of Closing ("Closing Date") shall in no event be later
than June 29, 1998.
<PAGE>
(b) Effective Date. Pursuant to an agreement of the parties, dated
April 21, 1998, the Closing of the purchase and sale of the Shares shall, for
all purposes, be effective as of 12:01 a.m., local time, on April 27, 1998
("Effective Date").
2. Purchase Price; 338 Election; Allocation of Purchase Price.
2.1 Purchase Price. The purchase price ("Purchase Price") for the Shares
shall be $4,350,000.
2.2 Payment of Purchase Price. The Purchase Price shall be paid to the
Shareholders, in accordance with each Shareholders percentage ownership of the
Shares, set forth on Exhibit A ("Shareholder's Percentage Interest") attached
hereto, and in the following manner:
(a) the amount of $1,000,000 (the "Contingent Amount") shall be paid by
Buyer to Shareholders subject to the contingencies, and at the times, described
in Section 11.10;
(b) the amount of $3,350,000 shall be paid by Buyer to the Shareholders
at the Closing in immediately available funds to an account designated by each
Shareholder.
2.3 338 Election; Purchase Price Allocation. The parties agree to make
such election required under Section 338(h)(10) of the Internal Revenue Code of
1986, as amended, so as to treat the purchase and sale of the Shares as a
purchase and sale of the assets of the Company. The Purchase Price shall be
allocated among the assets and liabilities of the Company as set forth on
Exhibit B attached hereto. The parties shall report the transaction
consistently with such allocation for all income tax purposes.
3. Certain Representations and Warranties of Shareholders. Each of the
Shareholders hereby severally represents and warrants to PJAM as follows:
3.1 Title to Shares; Share Restrictions. The Shareholder is the sole
record, lawful and beneficial owner of that number of Shares set forth opposite
such Shareholder's name on Exhibit B, and has good and marketable title to such
Shares. Except as disclosed on Schedule 31, the Shareholder owns such Shares
free and clear of all "Encumbrances" (which, as used in this Agreement, shall
mean any charge, claim, community property interest, condition, equitable
interest, lien, mortgage, easement, servitude, right-of-way, option, pledge,
security interest, right of first refusal or restriction of any kind, including
any restriction on use, voting, transfer, receipt of income or exercise of any
other attribute of ownership), other than restrictions on transfer under
applicable state and federal securities laws, and any restrictions under any
shareholder or similar agreement among the Shareholders and the Company, or any
of them (the "Shareholders' Agreement"), which the Shareholder's agree shall be
deemed waived as of Closing.
<PAGE>
3.2 Authority. The Shareholder has full right, power, authority and
capacity to execute, deliver and perform this Agreement in accordance with its
terms. This Agreement and each and every agreement, document and instrument to
be executed, delivered and performed by the Shareholder in connection herewith
or in connection therewith constitutes, or will, when executed and delivered,
constitute, the valid and legally binding obligation of the Shareholder,
enforceable against the Shareholder in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally.
3.3 Completeness of Statements. To the knowledge of the Shareholder,
no representation or warranty of the Shareholder in this Section 3 contains any
untrue statement of a material fact, any misstatement of a material fact, or
omits to state a material fact necessary to make the statements herein or
therein not misleading in light of the circumstances under which they were made.
4. Representations and Warranties of the Company and the Shareholders.
The Company and each of the Shareholders, jointly and severally, hereby make the
following representations and warranties to PJAM.
4.1 Organization and Standing of the Company. The Company is duly
organized, validly existing and in good standing under the laws of the state of
Louisiana. Neither the nature of the business of the Company nor the character
or location of the properties of the Company requires the Company to be
qualified as a foreign corporation in any jurisdiction. The Company has full
power and authority, corporate or otherwise, to own and lease its properties as
such properties are now owned and leased and to conduct its business as and
where such business is conducted. Schedule 41 contains true and complete copies
of the articles of incorporation and by-laws of the Company, as amended through
the date hereof.
4.2 Subsidiaries. The Company does not, directly or indirectly, own any
capital stock of, nor does it have any interest or investment (whether debt or
equity) of any nature in, any other corporation, partnership, business trust,
joint venture, association or other business organization.
4.3 Authority. The Company has all necessary corporate power and
authority to execute, deliver and perform this Agreement in accordance with its
terms. This Agreement and each and every agreement, document and instrument to
be executed, delivered and performed by the Company in connection herewith has
been duly and validly authorized, executed and delivered by the Company and
constitutes or will, when executed and delivered, constitute, the valid and
binding obligation of the Company, enforceable against the Company in accordance
with their terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally.
4.4 No Violations; Consents. Except as set forth on Schedule 4.4, and
except for the consent of PJI with respect to the transfer of the Shares (the
"PJI Consent"), the execution, delivery and performance of this Agreement the
consummation of the transactions described in this
<PAGE>
Agreement, and the fulfillment of and compliance with the terms and provisions
of this Agreement, do not and will not: (i) conflict with or violate the terms
or conditions of, result in the breach of or constitute a default under, (A) any
law, rule or regulation of any government or agency or department of any
government, or any material judgment, order, writ, award, decree, permit or
license of any court or other agency of any government to which the Company, or
any of its properties or assets, may be subject, (B) any agreement, instrument,
mortgage, commitment, franchise or restriction to which the Company is a party
or by which the Company, or any of its properties or assets, is bound or
committed, except for the "Amsouth Loan" (as hereafter defined), or (C) the
charter, bylaws or any other organizational documents of the Company; (ii)
constitute an event which could, or with the lapse of time or action by a third
party could, result in any manner in any default under or modify any of the
foregoing, provide any third party the right to cancel any of the foregoing, or
result in the creation of any Encumbrance upon any of the Company's assets or
properties that could have a material adverse effect on its business, assets,
financial condition or results of operations; (iii) constitute an event which
could, or with the lapse of time or action by a third party could, result in the
creation of any Encumbrance upon any of the issued and outstanding capital stock
of the Company; or (iv) require any consent, authorization or approval of any
federal, state or local court, governmental authority or regulatory body, or of
any creditor or any party to any such agreement, instrument, mortgage, contract
or commitment, or any other person or entity; or (v) give any party with rights
under any agreement, instrument, mortgage, franchise, commitment, judgment,
order, writ, award, decree, permit, license or other restriction to which the
Company or any of its properties or assets are subject or bound the right to
terminate, accelerate, modify or otherwise alter the rights or obligations of
the Company thereunder.
4.5 Capitalization; Stock Ownership and Rights.
(a) The authorized capital stock of the Company consists of 1000 shares
of no par value voting common stock, all of which are issued and outstanding
(the "Shares"). The Shareholders are the sole record and beneficial owners of
the Shares in the amounts set forth on Exhibit A attached hereto. Each
outstanding Share is duly authorized, validly issued, fully-paid and non-
assessable.
(b) As of the date of this Agreement, (i) the Company has no outstanding
class of capital stock other than the Shares, and (ii) except as identified on
Schedule 4.5, there are no, nor is there any arrangement not yet fully performed
which would result in any, outstanding options, warrants, conversion or exchange
rights, subscriptions, agreements or other commitments of any kind obligating
the Company to issue or sell, or to redeem, purchase or otherwise acquire,
directly or indirectly, any Shares or other capital stock of the Company or any
outstanding restrictions, agreements or commitments of any kind to which the
Company is a party or by which the Company is bound, which relate to or restrict
in any way the issuance or sale, or purchase, redemption or other acquisition,
of any Shares.
(c) None of the issued and outstanding Shares has been issued in
violation of any federal, state or other law pertaining to the issuance of
securities, or in violation of any rights,
<PAGE>
preemptive or otherwise, of the Company or any present Shareholder or past
shareholder of the Company.
4.6 Financial Statements. Included as Schedule 46 are the following
selected financial statements of the Company (collectively, the "Company
Financial Statements"), all of which have been prepared by PJAM for the Company:
(i) the unaudited balance sheet of the Company as of December 28, 1997, together
with a statement of income for the period ending December 28, 1997 (the "Year
End Financials"); and (ii) the unaudited interim balance sheet of the Company as
of April 26, 1998 (the "Acquisition Balance Sheet"), together with a statement
of income for the period commencing on December 29, 1997 and ending April 26,
1998 (the "Stub Period Financials"). The Company Financial Statements have been
prepared from the books and records of the Company, represent actual, bona fide
transactions and were prepared in conformity with generally accepted accounting
principles applied on a consistent basis. The balance sheets included in the
Company Financial Statements present fairly the financial condition of the
Company as of the respective dates of the Company Financial Statements, and the
statements of income included in the Company Financial Statements present fairly
the results of operation of the Company for the respective periods covered
thereby.
4.7 Absence of Undisclosed Liability. As of the date of the
Acquisition Balance Sheet, the Company had no debts, obligations (including, but
not limited to, obligations as a guarantor) or liabilities of any nature,
secured or unsecured (including, but not limited to, debts, obligations or
liabilities which are fixed, absolute, accrued or contingent), whether known or
unknown to the Shareholders, except (a) as shown (and in the amounts shown) on
the Acquisition Balance Sheet, or (b) for those obligations or liabilities which
are not required to be disclosed on the Acquisition Balance Sheet under
generally accepted accounting principles, or are otherwise disclosed to PJAM in
any other provision of this Agreement or the Schedules attached hereto, (c)
obligations under contracts not required to be disclosed pursuant to this
Agreement, and (d) current obligations and debts arising out of the ordinary
course of the Company's business and operations. Except as disclosed on
Schedule 47, since the date of the Acquisition Balance Sheet, the Company has
not incurred any debts, obligations (including, but not limited to, obligations
as a guarantor) or liabilities of any nature, secured or unsecured (including,
but not limited to, debts, obligations or liabilities which are fixed, absolute,
accrued or contingent), other than (a) obligations under contracts not required
to be disclosed pursuant to this Agreement, (b) debts, obligations and
liabilities incurred in the ordinary course of business consistent with past
practices, and none of which (i) is inconsistent with the representations,
warranties and covenants of the Company and the Shareholders contained herein or
in any other provisions of this Agreement, (ii) has had or may be expected to
have any material adverse effect on the business, assets, financial condition or
prospects of the Company, or (iii) constitutes a guarantee of any form or type.
4.8 Absence of Certain Events. Since the date of the Acquisition
Balance Sheet, the Company has not, except as set forth on Schedule 4.8:
<PAGE>
(a) issued, sold, purchased or redeemed any stocks, bonds, debentures,
notes, partnership interests or other securities or interests, or issued, sold
or granted any option, warrant or right to acquire any thereof;
(b) waived or released any debts, claims, rights of value or suffered
any extraordinary loss or written down the value of any inventories or other
assets, or written down or off any receivable, in excess of $100,000, in the
aggregate;
(c) declared, set aside or paid any dividend or distributions on any of
the Shares;
(d) made any change in its operations, other than changes in the lawful
and ordinary course of business, none of which has, and which in the aggregate
have not had, a material adverse effect on its business, operations, financial
condition, or results of operations or prospects;
(e) suffered any casualty, damage, destruction or loss to any of its
assets in excess of $10,000 for any one event or in excess of $100,000 in the
aggregate;
(f) suffered any material adverse change in its revenues or expenses,
financial position, assets, results of operations, business or cash flow, or
experienced any occurrence or event which alone or together with other
occurrences or events experienced by it has had or might reasonably be expected
to have a material adverse effect upon its revenues or expenses, financial
position, assets, results of operations, business or cash flow;
(g) terminated, placed on probation, disciplined, warned, or experienced
any resignation of any executive officer or experienced any resignations of, or
had any disputes involving the employment relationship with, any store manager
or operating partner of the Company ("Management Employee");
(h) paid or obligated itself to pay any bonuses or extraordinary
compensation to, or made any increase (except increases in the ordinary course
of business) in the compensation payable (or to become payable by it) to, any
officer, director or employee, or entered into any contract of employment not
terminable by it without notice, penalty or termination payment;
(i) terminated or amended or suffered the termination or amendment of
(i) any material lease, bids, contracts, commitments and other agreements of the
Company, or (ii) any permits, licenses, concessions, authorizations, franchises
(including any PJI franchises) or similar rights granted to or held by the
Company, which are necessary or are material and related to its operations;
(j) incurred any indebtedness for borrowed money or subjected any of its
properties or assets to any Encumbrances or to any other similar charge of any
nature whatsoever;
(k) made any loan or advance to any person or entity (except normal
travel or other reasonable expense advance to its employees);
<PAGE>
(l) made any material change in accounting principles, methods or
practices;
(m) adopted, modified or amended any material plan, contract or
arrangement providing for management or consulting services, severance, employee
insurance, bonuses, pension, profit sharing, stock purchase, deferred
compensation or other employee benefits;
(n) entered into any material agreement, arrangement or transaction
(other than transactions involving the sale of the Company's products in the
ordinary course of business) with any of the Shareholders, or any of the
officers, directors, agents or representatives of the Company, or any family
members of any of the foregoing, or any business or entity in which any of the
foregoing has a direct or indirect interest, except with respect to arrangements
with Greenebaum Doll & McDonald PLLC ("GD&M"), to provide legal services to the
Company;
(o) merged or consolidated with, or acquired all or any substantial
portion of the business or property of, any other entity, or entered into any
transactions other than in the ordinary course of business;
(p) entered into any agreement, contract, lease or license (or series of
related agreements, contracts, leases or licenses) involving more than $10,000,
other than in the ordinary course of business or in connection with the
development, construction or operation of its restaurants;
(q) entered into any agreement or commitment (whether or not in writing)
to do any of the above;
and the Company has:
(r) continued its operations in the ordinary course consistent with its
past practices and maintained its operations, assets, books of account, records
and files in substantially the same manner as before the date of the Acquisition
Balance Sheet;
(s) used its reasonable efforts to preserve its business.
4.9 Properties. The Company has good and marketable title to all of its
properties, interests in properties, and assets, tangible and intangible,
(excluding leased real properties for which the Company has good and valid
leasehold title), free and clear of all Encumbrances of any nature whatsoever,
except for statutory or similar governmental liens securing payments of ad
valorem property taxes or local taxes on income or profits not yet due and
payable by the Company, any inchoate landlord's liens, and those items set forth
in Schedule 4.9. Except as set forth on Schedule 4.9, each store owned or
operated by the Company is equipped in all material respects with equipment and
other property and assets in material compliance with the specifications of the
"Papa John's Franchise Agreements" (defined in Section 4.13(e)) and the Papa
John's Operations Manual, including the assets listed on Exhibit C, and such
equipment will be in operating
<PAGE>
condition on the Closing Date subject to ordinary wear and tear. Except for the
foregoing representation, the Company and the Shareholders make no
representation as to the condition, quality, fitness for use or merchantability
or state of repair of any of the tangible personal property of the Company.
Neither the whole nor any material portion of such assets has been condemned or
otherwise taken by public authority, and the Company and the Shareholders have
no knowledge that any such condemnation or taking is threatened.
4.10 Assets Necessary to Business. The Company owns or leases all
properties and assets, real, personal and mixed, tangible and intangible; has
area development rights or franchise rights relating to operation of the Papa
John's pizza delivery and carry-out restaurants operated or under development by
it; and is party to all other contracts and agreements necessary and appropriate
to permit it to carry on its business as presently conducted and at the
locations where presently conducted.
4.11 Bank Accounts, etc. Included as Schedule 4.11 is a true and complete
list of the name of each bank, brokerage firm or other financial institution
with which the Company has a depository, trading, margin, purchase, lending or
similar account, a line of credit, or from which the Company is authorized to
effect loans, or any safe deposit box, and the names of all persons authorized
by the Company to draw on such accounts, effect such loans or to have access to
such safe deposit box.
4.12 Absence of Other Business Operations; Restrictive Covenants. The only
business activity in which the Company has ever engaged has been the business of
owning, developing and operating Papa John's pizza delivery and carry-out
restaurants. Neither the Company nor any of its Shareholders is a party to, or
subject to, any contract, arrangement or commitment containing covenants not to
compete in the business of owning, developing or operating restaurants with any
person or entity or restricting the area in which it may own, operate or
franchise restaurants, except as set forth on Schedule 4.12, and except for non-
competition agreements with PJI.
4.13 Contracts; Contract Status. Schedule 4.13 contains a list and
description of the Company's franchise and development agreements with PJI
(collectively, the "Papa John's Franchise Agreements"). The Company is not
currently a party to, or subject to, any of the following, whether written or
oral, except with respect to the Papa John's Franchise Agreements and except as
otherwise set forth on Schedule 4.13:
(a) any management or employment contract or agreement, or any contract,
arrangement or commitment with any director, officer, employee, shareholder or
representative;
(b) any contracts, arrangements or commitments for capital expenditures
in excess of $10,000 as to any single expenditure or in excess of $25,000 for
all expenditures, except with respect to development and construction of
restaurants;
<PAGE>
(c) any contract, arrangement or commitment relating to borrowed money
or creating or providing for long-term debt or continuing credit or any
guaranty, indemnity or suretyship obligation with respect thereto or power of
attorney;
(d) any contract, arrangement or commitment in which it or any of its
employees or officers has covenanted to keep any information confidential (other
than the Papa John's Franchise Agreements);
(e) any franchise, development or license agreement with any person or
entity other than the Papa John's Franchise Agreements; or
(f) any other material contract, arrangement or commitment, or contract
agreement of commitment not made in the ordinary course of business.
The Company is not in default under the Papa John's Franchise Agreements, or any
other material contract, arrangement or commitment described on Schedule 4.13
(collectively, the "Material Contracts"), nor has any event occurred which, with
notice or passage of time, or both, would constitute a default by the Company
or, to the knowledge of the Company and the Shareholders, any other party, under
any of the Material Contracts, and (A) there is no basis for any of the other
parties to the Material Contracts to assert that the Company is in default
thereunder and (B) to the knowledge of the Company and the Shareholders, the
other parties to such Material Contracts are not in default thereunder. There
are no existing disputes between the Company and any other party to a Material
Contract. Except as set forth on Schedule 4.13, neither this Agreement nor the
consummation of the transactions contemplated by this Agreement will cause a
default under any Material Contract (other than the Amsouth Loan) and, following
consummation of the transactions contemplated by this Agreement, the Company
(and its successors) will continue to be entitled to the full benefit of all the
Material Contracts. The Company has delivered to PJAM a true and complete copy
of each of the Material Contracts.
4.14 Copyrights, Trademarks, Trade Names, Etc. The Company does not own or
use any trade names, trademarks, trade dress, copyrights, service marks,
registrations or applications therefor, and other similar rights
("Intangibles"), except for its corporate name and such Intangibles as the
Company is authorized and licensed to use pursuant to the Papa John's Franchise
Agreements ("PJI Intangibles"). The Company is not and has not been in violation
or infringement of any Intangible owned by any person or entity other than the
Company or in which any person or entity other than the Company has any right,
and there are no actual or threatened claims pending or, to the knowledge of the
Company and the Shareholders, contemplated against the Company relating thereto;
provided, with respect to matters arising out of the Company's duly authorized
use of the PJI Intangibles, the foregoing representations shall be limited to
the knowledge of the Company and the Shareholders. The Company has not agreed to
indemnify any person (other than PJI and its affiliates) for or against
infringement of any Intangibles. No Intangible owned or used by the Company is
subject to any outstanding order, award, writ, injunction, decree, or judgment
of which the Company or any Shareholder has knowledge.
4.15 Current Employees and Compensation; Officers and Directors.
<PAGE>
(a) Set forth on Schedule 4.15 is a complete list of the Company's
directors, officers, and Management Employees on the date who are presently
projected to receive more than $50,000 per year in compensation, along with the
amount of the current annual salaries or hourly rate for each Management
Employee listed. Except as disclosed on Schedule 4.15, the Company has not,
because of past practices or previous commitments with respect to its Management
Employees, established any rights on the part of such employees to receive
additional compensation inconsistent with past practices with respect to any
period after the date hereof or established any rights on the part of such
employees or officers to continued employment.
(b) Except as set forth on Schedule 4.15, neither the execution and
delivery of this Agreement nor the consummation of the transactions described
herein will (a) result in any payment (whether severance pay, unemployment
compensation or otherwise) becoming due from the Company to any employee,
director or officer or former employee, director or officer of the Company, (b)
increase any benefits otherwise payable to any employee, director or officer or
former employee, director or officer of the Company, or (c) result in the
acceleration of the time of payment or vesting of any such benefits.
(c) Except as set forth on Schedule 4.15, to the knowledge of the Company
and the Shareholders, no Management Employee or officer of the Company is a
party to or subject to any contract, arrangement or commitment containing
covenants by such employee or officer not to compete in the business conducted
by the Company with any Person other than PJI or the Company, or restricting the
customers from whom or the area in which the Management Employee or officer may
solicit or conduct business.
4.16 Employee Benefits.
(a) Except as set forth on Schedule 4.16, the Company does not maintain
or contribute to, and has never maintained or contributed to, (a) any "employee
pension benefit plans" ("Pension Plans") or any "employee welfare benefit plans"
("Welfare Plans") (as described in sections 3(2) and 3(1), respectively, of
Title I of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or (b) any other form of plan or agreement with any of its present or
former employees, officers, directors, agents or representatives providing for
present or future employee benefits or deferred compensation of any nature
whatsoever, any golden parachute or other severance protection agreement, or
similar agreement, or any plans or agreements providing stock options, stock
purchase or any other employee benefits of any nature whatsoever ("Compensation
Plans").
(b) Each of the Welfare Plans has been administered in compliance with
the requirements of the Code and ERISA, and all reports required by any
governmental agency for each of such plans have been timely filed, except as
identified on Schedule 4.16.
(c) On and after January 1, 1975, neither the Company nor any of its
employees who is a fiduciary of any Welfare Plan, has engaged in any transaction
in violation of Section 406(a)
<PAGE>
or Section 406(b) of ERISA (for which no exemption exists under Section 408 of
ERISA) or any "prohibited transaction" (as defined in Section 4975(c)(1) of the
Code) for which no exemption exists under Sections 4975(c)(2) or 4975(d) of the
Code.
(d) On or after July 1, 1986, each group health plan (as defined in
Section 5000(b)(1) of the Code) maintained by the Company has been administered
in compliance with the continuation coverage and notice requirements of Title I,
Subtitle B, Part 6 of ERISA and Section 4980B of the Code (and the regulations
thereunder).
(e) The Company is not presently required to contribute to, or during
the period of five years ending on the date hereof has not been required to
contribute to, any multi-employer plan (as defined in Section 4001(a)(3) of
ERISA) which does or did cover any employee of the Company and the Company is
not, and will not be on account of the consummation of the transactions
described in this Agreement, subject to any withdrawal or partial withdrawal
liability within the contemplation of Section 4201 of ERISA.
4.17 Environmental Matters. Except as set forth on Schedule 4.17, to the
actual knowledge of the Company and the Shareholders:
(a) there are no toxic, hazardous or carcinogenic substances or wastes
disposed of, stored, or are present on, in or under, any real property owned or
leased by the Company or utilized by the Company in the conduct of its business,
nor have any such substances or wastes been sent by the Company for storage,
treatment, reuse or recycling, or disposal to any other sites prior to the date
hereof;
(b) there are no releases or threats of releases of any toxic, hazardous
or carcinogenic substances or wastes to the environment from or at any store or
other facility owned or operated by the Company, including, without limitation,
any migration or any release or threatened release of such substances or wastes
from one environmental medium to another environmental medium;
(c) the Company is in compliance with all applicable federal, state, and
local statutes, rules, ordinances and other laws and regulations relating to
protection of the environment, including, without limitation, the Solid Waste
Disposal Act, as amended by the Resource Conservation and Recovery Act, 42
U.S.C. (S)6901, et seq.; the Clean Air Act, 42 U.S.C. (S)7401, et seq.; the
Clear Water Act, 33 U.S.C. (S)1251, et seq.; the Safe Drinking Water Act, 42
U.S.C. (S)300f, et seq.; the Toxic Substances Control Act, 15 U.S.C. (S)2601, et
seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. (S)136,
et seq.; the Emergency Planning and Community Right-To-Know Act, 42 U.S.C.
(S)11001, et seq.; and the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, 42 U.S.C. (S)9601, et seq. ("CERCLA"), and any
foreign laws, statutes, rules, orders, ordinances and other laws and regulations
thereunder, relating to or regulating hazardous or toxic substances or air,
water or land quality, waste, or other similar environmental matters
("Environmental Laws");
<PAGE>
(d) no conditions exist at the stores or other facilities owned, leased
or used by the Company which would necessitate remedial action under CERCLA or
any other Environmental Law;
(e) no conditions exist on any other property for which the Company is,
or may be, responsible for all or any portion of costs or expenses associated
with the reclamation or clean-up of such property under CERCLA or any other
Environmental Laws;
(f) no liens have been asserted against any assets of the Company, for
all or any portion of the costs or expenses associated with the reclamation or
clean-up of any waste disposal site or other property under CERCLA or any other
Environmental Laws; and
(g) there are no pending or threatened claims, assessments, or
litigation against the Company with respect to any alleged noncompliance with
any Environmental Laws.
4.18 Indebtedness to or from Officers, Directors, Etc. Except as set
forth on Schedule 4.18, none of the Shareholders nor any of the directors,
officers or employees of the Company, nor any family member of any of them, is
now indebted to the Company, nor is the Company indebted or obligated to any of
them (except with respect to legal services provided the Company by GD&M) except
for accrued salary and wages and normal employee benefits arising in the
ordinary course of its business. For purposes of this Agreement, the term
"family members" shall mean the current spouse, parents, siblings and children
of any persons, officers or employees of the Company.
4.19 Insider Interests. Except as set forth on Schedule 4.19, no
Shareholder, nor any family member of any of them:
(a) owns, directly or indirectly, any interest in, or is an officer,
director, employee or principal of any corporation, partnership, firm,
association or other person or entity which is a competitor in the pizza
delivery and carry out business or a supplier of the Company, other than PJI;
(b) has any interest, directly or indirectly, in any contract,
arrangement, commitment or property material to the business, operations,
property or assets of the Company; or
(c) has, directly or indirectly, within the two-year period immediately
prior to the date hereof, engaged in any transaction with the Company except
transactions inherent in the capacity of such person as a shareholder, or the
purchase of the Company's products in the ordinary course of the Company's
business.
4.20 Insurance. Attached to Schedule 4.20 are certificates or other
information evidencing each insurance policy (including policies providing
property, casualty, liability, health and workers' compensation coverage and
bond and surety arrangements but excluding policies of
<PAGE>
insurance insuring the life of any Shareholder) to which the Company is a party,
a named insured, or otherwise the beneficiary of coverage.
With respect to each such insurance policy: (1) the policy is in full force and
effect; (2) the Company is not in breach or default (including with respect to
the payment of premiums or the giving of notices) under the policy; and (3) the
policy (or any other policy to which the Company has been a party) does not
provide for any retrospective premium adjustment or other experience-based
liability on the part of the Company. Schedule 4.20 describes any self-insurance
arrangements affecting the Company. Also attached to Schedule 4.20 are loss runs
describing workers' compensation claims and claims made against the Company's
property and casualty insurance during the three year period prior to the date
hereof.
4.21 Labor Matters. The Company is not a party to, or negotiating, any
collective-bargaining agreement. There are no union organizational or
representation efforts underway or threatened, nor are there any existing or
threatened labor strikes, slow downs, disputes, grievances, or disturbances
involving the Company's employees which might have a material adverse affect on
the Company's business or operations. Except as set forth on Schedule 4.21, the
Company has complied with the National Labor Relations Act, as amended, Title
VII of the Civil Rights Act of 1964, as amended, the Occupational Safety and
Health Act, Executive Order 11246, the regulations under such acts and all other
federal, state and local statutes, rules, orders, regulations, ordinances, codes
and other laws relating to employment; and no proceedings before any court,
governmental agency or instrumentality or arbitrator relating to such matters,
including any unfair labor practice claims, are pending, or to the knowledge of
the Company and the Shareholders, threatened.
4.22 Leases. Schedule 4.22 includes a true and complete list of all
leases of real and personal property and all options to lease such property
(oral or written) to which the Company is a party, as lessor, lessee or
otherwise (the "Leases"), and addresses of the real property so leased. True and
correct copies of the Leases (each as amended through the date hereof) have been
delivered to PJAM, and each of the Leases is in good standing, valid, binding,
in full force and effect, and enforceable in accordance with its terms against
the lessor, except to the extent that such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally. Except as disclosed on
Schedule 4.22 of the Company, subject to the landlord's or lessor's rights set
forth in the Leases and their mortgage lenders, the rights of the Company in the
property covered thereby (including any improvements and appurtenances thereto)
are, to the knowledge of the Company and the Shareholders, paramount to the
rights of any other person or entity. The Company is not in default under any of
such Leases, nor is there any material dispute between the Company and any other
party to any of such Leases, nor, to the knowledge of the Company or the
Shareholders, is any other party to any of such Leases in default thereunder. No
event has occurred which, with the passage of time, notice, or both, could give
the lessor or landlord under any of the Leases the right to claim a default
thereunder. Except as disclosed on Schedule 4.22, neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated by this Agreement will cause a default under any of the Leases.
<PAGE>
4.23 Licenses and Permits. The Company possesses all permits,
concessions, licenses, franchises (including Papa John's Franchise Agreements),
certificates of compliance, consents, approvals, orders, certificates and
authorizations required or necessary to permit the Company to carry on its
business or operations at the locations where such business is conducted,
without material interference or interruption (the "Licenses"). The Company has
furnished PJAM a true and complete copy of each of the Licenses. To the
knowledge of the Company and the Shareholders no suspension or cancellation of
any License is threatened, and the consummation of the transactions contemplated
by this Agreement will not cause the suspension or cancellation of any License.
4.24 Litigation. Except as set forth on Schedule 4.24, and except for
garnishments of employee's wages, there are no investigations, actions, suits,
claims, arbitrations or proceedings, either judicial, administrative or
otherwise, pending or, to the knowledge of the Company or the Shareholders,
threatened against or affecting (a) the Company, or any Shareholder concerning
the Company, or any of the properties, business, assets, or operations of the
Company, (b) any employee, officer or director of the Company (in his capacity
as such), (c) the transactions contemplated hereunder, or (d) the ownership of
any securities of the Company, by or before any court, governmental department,
commission, board, bureau, agency, mediator, arbitrator or other person or
instrumentality that would have a material adverse effect on the business or
operations of the Company.
4.25 Real Property. To the actual knowledge of the Company and the
Shareholders:
(a) the Company's operations on and use of the real property owned
and leased by the Company under the Leases (the "Real Property") conforms to
applicable zoning regulations, including use, set-back and area requirements,
and other restrictions and covenants on the use thereof;
(b) All improvements to the Real Property are adequate and sufficient
for the operation of the Papa John's pizza and delivery restaurants thereon, and
comply in all material respects with the standards and specifications of PJI;
(c) All applicable zoning ordinances, building codes and other
federal, state and local laws with respect to the Real Property, and the
improvements thereon, permit the existence of the presently existing
improvements and the continuation of the operation of the Papa John's pizza and
delivery restaurants as presently conducted; and
(d) The Real Property and all improvements located thereon comply
with all other applicable municipal, county and other governmental laws, orders,
regulations and restrictions, and neither the Company nor any of the
Shareholders has any knowledge or information which would lead it or any of them
to believe that the use of any of the Real Property will be adversely affected
by any pending or proposed zoning or use changes.
<PAGE>
4.26 Payments. Neither the Company nor any of the Shareholders has,
directly or indirectly, paid or delivered any fees, commissions or other sums of
money or items of property, however characterized, to any finders, agents,
customers, suppliers, governmental officials or other parties that in any manner
are related to the business or operations of the Company and which the
Shareholder or any officer or director of the Company knows, or had reason to
believe, were illegal under any federal, state or local laws.
4.27 Tax Returns; Tax Elections.
(a) Except as set forth on Schedule 4.27, the Company has prepared,
signed and filed all federal, state, local and other tax returns and reports
required to be filed by all applicable statutes, laws, rules and regulations on
or before the date hereof, and has paid all taxes or installments thereof,
interest, penalties, assessments and deficiencies of every kind and nature
whatsoever which were due and owing by the Company on such tax returns and
reports or which were or are otherwise due and owing by the Company under all
applicable statutes, laws, rules and regulations for any periods for which
returns or reports were due. The provisions for taxes in the Acquisition Balance
Sheet are sufficient for the payment of all federal, state, local, foreign and
other taxes that are owed by the Company and attributable to all periods ended
on or before the date of the Acquisition Balance Sheet, and adequate and proper
accruals have been made by the Company for all liabilities for taxes accruing
since the date of the Acquisition Balance Sheet. The Company and the
Shareholders have elected to be taxed as an "S-Corporation" under subchapter S
of the Internal Revenue Code of 1986, as amended, which election shall terminate
as of the Effective Date. Except as set forth on Schedule 4.27, the Company has
timely paid in full all ad valorem property taxes and other assessments levied
on its assets and properties which have heretofore become due and payable. There
are in effect no agreements, waivers or other arrangements providing for an
extension of time with regard to the assessment of any tax, or any deficiency
with respect thereto, against the Company. Except as set forth on Schedule 4.27
of the Company, there are no actions, suits, proceedings, arbitrations,
examinations, investigations or claims now pending, nor, to the knowledge of the
Company and the Shareholders, proposed, against the Company, nor are there any
matters under discussion between the Company and the Internal Revenue Service,
or other federal, state, local or other governmental authority, relating to any
taxes or assessments, or any claims or deficiencies with respect thereto. The
Company has never received notice of an audit, review or examination of any of
its federal income tax returns by the Internal Revenue Service or any other
governmental agency of the federal government, nor have its federal income tax
returns been audited by the Internal Revenue Service. The Company has never
received notice of an audit, review or examination of any of its state income
tax returns, ad valorem property tax returns, license tax returns, employee
withholding returns, sales tax returns or any and all other returns filed with
states in which the Company is doing business, nor have any such returns been
audited by any department or agency, whether local or state, charged with
revenue and taxation, except as set forth on Schedule 4.27 of the Company.
(b) Except for the election under Section 1362 of the Code to be
taxed as a Subchapter S corporation, there are no material elections or
consents filed with the Internal Revenue Service or any other taxing authorities
affecting the Company. The Company has delivered
<PAGE>
to PJAM true and complete copies of all federal and state income tax returns
filed by the Company since January 1, 1995.
(c) The Company has withheld proper and accurate amounts from its
employees in full and complete compliance with the tax withholding provisions of
the Code and other applicable federal, state, local and other statutes, laws,
rules and regulations, and has filed proper and accurate federal, state, local
and other returns and reports for all years and periods (and portions thereof)
for which any such returns and reports were due with respect to employee income
taxes, withholding taxes, social security taxes and unemployment taxes. Except
as set forth on Schedule 4.27 of the Company, all payments due from the Company
on account of employee income tax withholding, social security taxes or
unemployment taxes in respect of all periods (and portions thereof) ended on or
prior to the date hereof have been properly paid within the time allowed,
without extension.
(d) None of the assets of the Company are subject to any lien or levy
or other manner of collection by a taxing authority for any tax deficiency or
liability of the Company (other than statutory and similar governmental liens
securing payment of sales taxes, ad valorem property taxes or local taxes on
income or profits not yet due and payable by the Company but reflected on the
"Records" (as defined in Section 4.29), nor will the assets become subject to
any such lien or levy as a result of this Agreement or consummation of the
transactions contemplated hereby.
4.28 Compliance. The Company has complied with all applicable laws,
regulations, rules and orders of Federal, state and local governments and all
agencies thereof applicable to its business, business practices (including, but
not limited to, the marketing, sales and distribution of its products and
services) and assets and properties owned or leased by it. No claims have been
filed in writing against the Company alleging a violation of any such laws or
regulations and neither the Company nor any of the Shareholders has received any
written notice of, or claim alleging, any violation of such laws or regulations.
4.29 Books and Records. Prior to the execution of this Agreement, the
Company furnished to PJAM for its examination the minute and stock books of the
Company or complete copies thereof, which documents contained a complete record
of any and all proceedings and actions at all meetings of the shareholders and
the board of directors of the Company required to be set forth in said minutes
or for which minutes were prepared. Except for actions required or necessitated
by this Agreement, no changes or additions to the minutes or stock books of the
Company have been made since the date such books were so furnished, and no
proceeding or action required to be set forth in said books has occurred since
the date such books were last furnished to PJAM, except with respect to this
Agreement.
4.30 Completeness of Statements. The Company and the Shareholders have
disclosed, in writing, all material facts known to them relating to the
representations and warranties made by them in this Section 4. To the knowledge
of the Company and the Shareholders, no representation or warranty of the
Company and the Shareholders in this Agreement contains any untrue statement of
a material fact, any misstatement of a material fact, or omits to state a
material fact necessary
<PAGE>
to make the statements herein or therein not misleading in light of the
circumstances under which they were made. Any matter disclosed on any schedules
referred to in this Section 4 shall be deemed to be disclosed on all such
schedules; provided, however, that nothing in the schedules shall be deemed
adequate to disclose an exception to any representation or warranty made herein
unless the schedule identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail; and provided further, the
mere listing (or inclusion of a copy) of a document or other item shall not be
deemed adequate to disclose an exception to a representation or warranty made
herein (unless the representation or warranty has to do with the existence of
the document or other item itself).
5. Representations and Warranties of PJAM. PJAM represents and warrants to
the Company and the Shareholders as follows:
5.1 Incorporation; Corporate Power. PJAM is duly organized validly
existing and in good standing under the laws of the State of Delaware. PJAM has,
and at all times has had, full power and authority, corporate or otherwise, to
own and lease its properties as such properties are now owned and leased and to
conduct its business as and where the businesses have and are now being
conducted.
5.2 Authorization; No Violation.
(a) This Agreement has been duly executed and delivered by PJAM and
constitutes its legal, valid and binding obligation, enforceable in accordance
with the terms of this Agreement. PJAM has full power and authority, corporate
and otherwise, to enter into and to deliver this Agreement and perform the
transactions described herein.
(b) Except as set forth in Schedule 5.2, all consents, approvals,
resolutions, authorizations, actions or orders, including those which must be
obtained from Governmental Body, required of PJAM for the authorization,
execution and delivery of, and for the consummation of the transactions
described in, this Agreement have been obtained.
(c) Except as disclosed in Schedule 5.2, the execution and delivery
of this Agreement, the consummation of the transactions described in this
Agreement, and the fulfillment of and compliance with its terms and provisions
do not (1) conflict with or violate (a) any judicial or administrative order,
award, judgment or decree applicable to PJAM or (B) any term, condition or
provision of PJAM's Certificate of Incorporation or By-Laws, or any agreement,
instrument, mortgage, contract, or restriction to which it is a party, or by
which it is bound or which is applicable to its properties, or (2) require the
approval, consent or authorization of any other Person.
6. Covenants of the Parties.
6.1 Operation of the Company Pending Closing. From the date hereof
through the Closing Date, the Company and the Shareholders shall, except as
otherwise provided herein and except as otherwise consented to by PJAM:
<PAGE>
(a) continue the Company's business and operations substantially in
the same manner as heretofore, not undertake any transactions or enter into any
contracts, commitments or arrangements other than in the ordinary course of
business consistent with its past practices, and use their reasonable efforts to
preserve the Company's present business and organization;
(b) refrain from disposing of or encumbering or agreeing to dispose
of or encumber any of the Company's assets other than (1) inventory sold in the
ordinary course of business consistent with past practices and (2) disposition
of worn out or obsolete assets which will be replaced with assets of equal or
greater value.
(c) maintain the Licenses and not take any action, or refrain from
taking any action, which could cause any of the Licenses to be revoked,
restricted or suspended;
(d) not make any commitment for capital expenditure in excess of
$100,000, except in connection with the construction and development of
restaurants;
(e) take all commercially reasonable efforts necessary to maintain
its tangible assets for the Company's use and benefit after the Closing Date
(normal wear and tear excepted);
(f) maintain its existing insurance coverage, subject to variations
in amounts required by ordinary operations;
(g) not terminate or amend, or suffer the termination or amendment
of, any Material Contract or License except in the ordinary course of business;
(h) not knowingly take or omit to take any action which would cause
any of the representations and warranties made by it herein to be untrue or
incorrect;
(i) not declare or pay any dividend on, or make any distribution to
the holders of, any of the Shares;
(j) not change its Articles of Incorporation or By-Laws;
(k) not terminate the Company's existence;
(l) not authorize for issue or issue any additional shares of capital
stock or securities or change or otherwise adjust the number of shares of
capital stock outstanding;
(m) not make any investment in any other Person;
(n) not increase the rate or change the nature of the compensation
payable to the Company's Management Employees; and
(o) not incur or agree to incur any indebtedness for borrowed money.
<PAGE>
6.2 Non-Competition Agreement. The Shareholders shall execute and deliver
at the Closing a Non-Competition Agreement in the form of Exhibit D attached
hereto (the "Non-Competition Agreement") pursuant to which they agree not to
compete with PJAM or the Company in the pizza business in the Louisiana DMA
during the two-year period following the Closing Date.
6.3 Release and Resignation. Each Shareholder shall execute and deliver
at the Closing a letter in the form of Exhibit E attached hereto containing (1)
his or her resignation from all offices as an officer, director and employee
with the Company effective as of the Closing Date, and (2) a general release of
claims releasing the Company from all liabilities and obligations that any of
them may owe such Shareholder for events arising on or before the Closing Date
(other than with respect to obligations expressly provided in this Agreement and
the Company's obligation to indemnify its officers and directors).
6.4 Compliance with Conditions. All parties hereto agree to cooperate
fully with each other in order to meet the conditions set forth in Sections 7
and 8. All parties further agree to use their respective best efforts, and to
act in good faith, to consummate the transactions described in this Agreement as
promptly as possible.
6.5 Payment of Certain Loans.
(a) The Company is maker of that certain Note for Business and
Commercial Loans, dated May 13, 1997, in the original principal amount of
$1,500,000, payable to Amsouth (the "Amsouth Loan"). The approximate amount due
under such Amsouth Loan, as of the Effective Date, was $1,283,770.
Simultaneously with the Closing, PJAM shall pay or cause the Company to pay, and
fully discharge, all amounts due under the Amsouth Loan.
(b) The Company is indebted to certain of the Shareholders with
respect to loans made by such Shareholders to the Company, in the aggregate
principal amount of $100,000, as such loans are described on Exhibit F attached
hereto ("Shareholder Loans"). Simultaneously with the Closing, PJAM shall cause
the Company to pay to such Shareholders all amounts due such Shareholders under
the Shareholder Loans.
6.6 Further Actions. Each of the parties hereto agrees that it will, at
any time, and from time to time, after the date hereof, upon the reasonable
request of the appropriate party, do, execute, acknowledge and deliver, or will
cause to be done, executed, acknowledged and delivered, all such further acts,
deeds, assignments, transfers, conveyances, powers of attorney and assurances as
may be required to complete the transactions and carry out the obligations
described in this Agreement. From the date hereof to the Closing Date, each
party will promptly notify each other party in writing if it becomes aware that
any of the representations or warranties made by any party (including such
party) in this Agreement become inaccurate or is breached, or may become
inaccurate or be breached, or if such party is unable to perform any agreement,
covenant or condition required of such party under this Agreement.
<PAGE>
6.7 Continuation of Insurance Coverage. PJAM agrees that, during the 18-
month period following the Closing, it will maintain commercial general
liability and automobile liability insurance coverage (the "Coverage"), insuring
the Company for occurrences occurring prior to the Closing, with coverage limits
and deductibles no less favorable than the coverage limits and deductibles
presently provided by the Company's existing Coverage. Without limiting the
generality of the foregoing, in the event PJAM or the Company replace the
Company's existing policies of Coverage, then, if any of such existing insurance
policies are "claims made policies," PJAM shall cause the Company to obtain tail
coverage insuring such pre-closing occurrences during such 18-month period
following the Closing with limits and deductibles no less favorable then those
of the existing Coverage.
7. Conditions to the Obligations of PJAM. The obligations of PJAM to
consummate the transactions described in this Agreement are subject to the
fulfillment, prior to or at the Closing, of the conditions precedent that:
7.1 Representations and Warranties Correct. All representations and
warranties of the Company and the Shareholders in this Agreement shall be true
and correct in all material respects on and as of the Closing Date as though
made on such date.
7.2 Compliance with Covenants. The Company and the Shareholders shall
have performed and complied with all the covenants, agreements and conditions
required by this Agreement to be performed or complied with by them prior to or
at the Closing.
7.3 Necessary Consents. The Company and the Shareholders shall have
received all consents, in the form and substance reasonably satisfactory to
PJAM, to the purchase and sale of the Shares from the other parties to the
Contracts and Licenses, to the extent such consent is expressly required under
such Contracts and Licenses or otherwise deemed necessary in the reasonable
judgment of PJAM.
7.4 No Material Adverse Change. Between the date hereof and the Closing
Date, there shall have been no material adverse change in the business,
financial condition, operations or assets of the Company.
7.5 No Litigation. No action or proceeding before any court or any
governmental body shall be pending or threatened pursuant to which an
unfavorable judgment, decree, injunction or order would (a) prevent the carrying
out of this Agreement or any of the transactions contemplated hereby, (b)
declare unlawful the transactions described in this Agreement, (c) cause such
transactions to be rescinded or (d) adversely affect the right of PJAM to
operate or control the business, operations or assets of the Company.
8. Conditions to Obligations of the Shareholders. The obligations of the
Shareholders to consummate this Agreement and the transactions herein described
are subject to the fulfillment prior to or at the Closing of the conditions
precedent that:
<PAGE>
8.1 Representatives and Warranties Correct. All representations and
warranties of PJAM in this Agreement shall be true and correct in all material
respects on and as of the Closing Date as though made on such date.
8.2 Compliance with Covenants. PJAM shall have performed and complied
with all the covenants, agreements and conditions required by this Agreement to
be performed or complied with by them prior to or at the Closing.
8.3 Necessary Consents. The Company and the Shareholders shall have
received all consents, in form and substance reasonably satisfactory to them, to
the purchase and sale of the Shares from the other parties to the Contracts and
Licenses, to the extent such consent is expressly required under such Contracts
and Licenses.
9. Termination.
9.1 Termination Events.
(a) PJAM may terminate this Agreement by delivery of notice of
termination to the Shareholders and the Company if at anytime prior to the
Closing Date:
(1) Any representation or warranty of Shareholders or the
Company in this Agreement or any other agreement or instrument delivered in
connection therewith becomes materially untrue;
(2) Shareholders or the Company fail or refuse to perform any
obligation or covenant required of them by this Agreement to be performed by
any of them prior to the Closing Date;
(3) Any of the conditions in Section 7 has not been satisfied as
of the Closing Date or if satisfaction of such a condition is or becomes
impossible (other than through the failure of PJAM to comply with its
obligations under this Agreement) and PJAM has not waived such condition on or
before the Closing Date.
(b) Shareholders (by action of Shareholders holding a majority of
Shares) and the Company may terminate this Agreement by delivery of notice of
termination to PJAM if at anytime prior to the Closing Date:
(1) Any representation or warranty of PJAM in this Agreement or
any other agreement or instrument delivered in connection therewith becomes
materially untrue;
(2) PJAM fails or refuses to perform any obligation or covenant
required of it by this Agreement to be performed by it prior to the Closing
Date; or
<PAGE>
(3) Any of the conditions in Section 8 has not been satisfied as
of the Closing Date or if satisfaction of such a condition is or becomes
impossible (other than through the failure of Shareholders or the Company to
comply with their respective obligations under this Agreement) and
Shareholders and the Company have not waived such condition on or before the
Closing Date;
(c) The parties may terminate this Agreement at any time prior to the
Closing Date by mutual consent.
(d) Any party (in the case of the Shareholders, by action of
Shareholders holding a majority of Shares) may terminate this Agreement by
delivery of notice of termination to the other parties if the Closing has not
occurred (other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before June 29, 1998, or such later date as the parties may agree.
9.2 Effect of Termination. Each party's right of termination under
Section 9.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 91, all further
obligations of the parties under this Agreement will terminate, except that the
obligations in Sections 12.2 and 12.9 will survive; provided, however, that if
this Agreement is terminated by a party because of the breach of the Agreement
by the other party or because one or more of the conditions to the terminating
party's obligations under this Agreement is not satisfied as a result of the
other party's failure to comply with its obligations under this Agreement, the
terminating party's right to pursue all legal remedies will survive such
termination unimpaired.
10. Deliveries and Actions Taken at Closing.
10.1 Deliveries by the Shareholders. At the Closing, the Shareholders
shall deliver to PJAM the following (duly executed and notarized where
appropriate):
(a) Copies of resolutions of the Board of Directors of the Company
which shall be in full force and effect as of the Closing Date authorizing the
execution and delivery of this Agreement and the consummation of the transaction
contemplated hereby, certified by the Secretary of the Company;
(b) The resignations of and release of claims by those officers and
directors of the Company designated by PJAM;
(c) Certificate of Good Standing from the Secretary of State of the
State of Louisiana for the Company;
<PAGE>
(d) A certificate signed by each Shareholder and an executive officer of
the Company certifying as to the fulfillment of the conditions set forth in
Sections 7.1 through 7.4 (as applicable to it); and
(e) Certificates representing the Shares, duly endorsed for transfer on
the books of the Company;
(f) Such other documents as may be reasonably requested by PJAM, that it
deems reasonably necessary, to effect the Closing.
10.2 Deliveries by PJAM. At the Closing, PJAM shall deliver to the
Shareholders the following (duly executed where appropriate):
(a) Immediately available funds in the amount provided for in Section
2.2(b);
(b) A certificate signed by an officer of PJAM certifying as to the
fulfillment of the conditions set forth in Section 8;
(c) Copies of the resolutions of the Board of Directors of PJAM or the
Executive Committee of PJAM's Board of Directors, acceptable in form and
substance to Shareholder's counsel, authorizing the execution, delivery and
performance of this Agreement, certified by the secretary or assistance
secretary of PJAM; and
(d) Such other documents and instruments as may be reasonably necessary
to effect the closing of the transactions contemplated hereby as they are
contemplated in this Agreement.
10.3 Deliveries by PJAM and the Shareholders. At the Closing, the
Shareholders and PJAM shall execute and deliver the Non-Competition Agreements.
11. Survival of Representations and Warranties; Indemnities.
11.1 Survival. The representations and warranties contained in this
Agreement shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, and shall continue to be
binding for a period of 18 months from and after the Closing Date, except for
(a) the representations and warranties contained in Sections 3.1 (Title to
Shares; Share Restrictions), 3.2 (Authority) and 4.5 (Capitalization; Stock
Ownership and Rights), which shall not expire, and (b) the representations and
warranties contained in Section 4.27 (Tax Returns; Tax Elections), which shall
survive until the applicable limitations period has run; provided, if a claim is
brought within the applicable period set forth above, the representations and
warranties which are the subject of such claim shall not expire until a final
resolution or non-appealable determination is made of such claim.
Notwithstanding the foregoing, the parties acknowledge that PJAM, since October,
1996, has operated and managed the business of the Company for the Company and
the Shareholders, in consideration of fees paid by the Company to PJAM (the
"Management Relationship"), and that as a result of such Management
Relationship, PJAM is intimately familiar with the Company and its operations
and, in fact, has much more
<PAGE>
knowledge regarding the details regarding the Company's business, assets and
liabilities than do the Shareholders. Consequently, in the event that any of
David Walker, Ross Davison, Larry Miller or Dianna Morton (who are all employees
of PJAM) or any employee of PJAM employed in its accounts payable department,
shall have actual knowledge that any representation or warranty of the Company
or the Shareholders contained in this Agreement is untrue as of the date hereof
or as of the Closing Date, then PJAM shall have no right to rely on such
representation or warranty and shall have no claim against the Company or the
Shareholders for a breach of non-performance of such representation or warranty.
Additionally, in the event that any covenant or agreement of the Shareholders or
the Company contained in this Agreement shall be breached due to actions of PJAM
during its course of operation and management of the business of the Company,
then neither the Company nor any of the Shareholders shall have any liability
therefor.
11.2 General Indemnities of the Shareholders. Each of the Shareholders
shall defend and indemnify PJAM, and hold PJAM harmless from and against, the
following (collectively, the "General Indemnified Liabilities," individually a
"General Indemnified Liability"):
(a) all liabilities, debts, obligations, losses, damages, deficiencies,
penalties, claims, actions, suits, proceedings, investigations, demands,
assessments, orders and judgments (whether fixed, contingent, accrued, absolute
or otherwise) incurred by PJAM or the Company resulting from, arising out of, or
in connection with (i) any inaccurate representation or warranty or the breach
or non-fulfillment of any representation or warranty of the Company and the
Shareholders, or any of them, contained in this Agreement, except for those
representations and warranties specifically identified in Section 11.3, (ii) any
breach or default in the performance by the Company or the Shareholders, or any
of them, of any covenant or agreement contained herein, (iii) any tax deficiency
or assessment of the Company relating to a period ended on or prior to the
Closing Date (regardless of any disclosures set forth in this Agreement), (iv)
matters described on Schedule 4.24; or (v) any acts, omissions, events,
conditions or circumstances occurring or existing on or prior to the Closing
which results in any claim or investigation by any governmental authority or any
law claim or suit against the Company; and
(b) any and all costs and expenses incident to any of the foregoing,
including, but not limited to, reasonable attorneys' and accountants' fees.
11.3 Additional Indemnities of the Shareholders. Each Shareholder shall
defend and indemnify PJAM and shall hold PJAM and the Company harmless, from and
against the following (collectively the "Additional Indemnified Liabilities,"
individually an "Additional Indemnified Liability"):
(a) all liabilities, debts, obligations, losses, damages, deficiencies,
penalties, claims, actions, suits, proceedings, investigations, demands,
assessments, orders and judgments (whether fixed, contingent, accrued, absolute
or otherwise) incurred by PJAM or the Company resulting from, arising out of, or
in connection with any misrepresentation or breach of a representation or
warranty of such Shareholder contained in Section 3 (a "Section 3 Indemnity")
(which shall be the
<PAGE>
sole and exclusive obligation of the Shareholder who has misrepresented or
breached the representation or warranty giving rise to the Section 3 Indemnity,
and no other Shareholder); and
(b) any and all costs and expenses incident to any of the foregoing,
including, but not limited to, reasonable attorneys' and accountants' fees.
11.4 Indemnity by PJAM. PJAM shall defend and indemnify the Shareholders
and hold them harmless from and against the following (collectively "PJAM
Indemnified Liabilities," individually a "PJAM Indemnified Liability"):
(a) all liabilities, debts, obligations, losses, damages, deficiencies,
penalties, claims, actions, suits, proceedings, investigations, demands,
assessments, orders and judgments (whether fixed, contingent, accrued, absolute
or otherwise) incurred by the Shareholders resulting from, arising out of, or in
connection with (i) any inaccurate representation or warranty or the breach of
any representation or warranty of PJAM contained in this Agreement, or (ii) any
breach or default in the performance by PJAM of any agreement, covenant or
undertaking which it is to perform under this Agreement or (iii) any breach by
the Company of the Leases following the Closing; and
(b) any and all costs and expenses incident to any of the foregoing,
including, but not limited to, reasonable attorneys' and accountants' fees.
11.5 Exclusive Remedy. From and after the Closing, the indemnification
provided for in this Section 11 shall be the exclusive remedy in any action
seeking damages or any other form of monetary relief brought by any party to
this Agreement (other than the Non-Competition Agreements) against another party
hereto or thereto, including any action brought by any such party for any
damages or other form of monetary relief that is predicated upon or otherwise
relates to, or arises out of, the transactions provided for in this Agreement,
but which is otherwise not a General Indemnified Liability or Additional
Indemnified Liability as such terms are defined herein ("Associated
Liabilities"); provided, that nothing herein shall be construed to limit the
right of a party, in a proper case, to seek injunctive or other equitable relief
for a breach of this Agreement.
11.6 Limitations on Shareholder's Indemnification Obligations.
(a) In no event shall the aggregate liability of the Shareholders with
respect to claims for indemnification for General Indemnified Liabilities and
Associated Liabilities exceed $1,000,000 (the "Indemnification Cap").
Additionally, in no event shall the aggregate liability of any individual
Shareholder for General Indemnified Liabilities and Associated Liabilities
exceed an amount equal to (i) the Indemnification Cap multiplied by (ii) such
Shareholder's Percentage Interest. Further, in no event shall the aggregate
liability of any individual Shareholder for Additional Indemnified Liabilities
exceed an amount equal to (i) the Purchase Price multiplied by (ii) such
Shareholder's Percentage Interest. Further, in no event shall the aggregate
liability of
<PAGE>
any individual Shareholder for indemnification pursuant to this Section 11
exceed an amount equal to (i) the Purchase Price multiplied by (ii) such
Shareholder's Percentage Interest.
(b) PJAM shall not be entitled to indemnification for General Indemnified
Liabilities or Associated Liabilities until the aggregate amount of claims with
respect to such indemnified liabilities equals or exceeds $25,000, at which time
PJAM shall be entitled to indemnification for indemnified liabilities in excess
of such amount.
11.7 Claims Procedure. Any party (the "Indemnified Party") may assert a
claim (a "Claim") against the other party (the "Indemnifying Party") with
respect to any matter which it believes is subject to indemnification pursuant
to this Agreement by giving written notice (a "Claim Notice") to the
Indemnifying Party. The Claim Notice shall be given by the Indemnified Party
promptly, but in no event later than 10 days before a responsive pleading is
required to be filed in a third party action or otherwise no later than 30 days,
after (i) it has knowledge of a Claim under this Agreement or (ii) the
commencement of any legal proceeding against such Indemnified Party, whichever
occurs first. The Claim Notice shall state the basis for the Claim and the
dollar amount thereof and shall be accompanied by any documents or information
relevant thereto. The party receiving the Claim Notice shall have 45 days (or
such shorter period of time as is reasonable when the Indemnified Party must
respond to a pleading filed by a third party or any other type of "Third Party
Claim" (defined in Section 11.8)) after receipt within which to pay the amount
thereof to the Indemnified Party or to discharge such liability, or otherwise to
respond to the Claim Notice (the "Response Period"). If the party does not pay
the amount set forth in the Claim, discharge such liability or respond to the
Claim Notice within the Response Period, the party bringing the Claim may
institute arbitration (as required by Section 11.9) or, in the case of PJAM, may
offset the amount of the Claim against payment of the Contingent Amount. If the
Indemnifying Party does not pay or discharge the Indemnified Liability, but
otherwise responds to the Claim Notice within the Response Period, except for a
Third Party Claim, the parties shall in good faith attempt to resolve the Claim
short of arbitration or litigation during the 45 days following the expiration
of the Response Period. If the parties are unable to resolve the dispute within
such 45 day period, then and only then may the party bringing the Claim
institute arbitration or litigation.
11.8 Defense of Third Party Claim. If the Indemnifying Party responds to a
Claim that is made by a third party ("Third Party Claim") within the Response
Period, the Indemnifying Party shall have the right to assume, at such party's
expense, the defense of any Third Party Claim and to control the Third Party
Claim and any settlement thereof if the Indemnifying Party acknowledges in
writing that the Third Party Claim constitutes an enforceable liability for
which such party is obligated to indemnify the Indemnified Party; provided, the
assumption and control of the defense by Shareholders of any Third Party Claim
involving a General Indemnified Liability or an Associated Liability shall be
dependent upon the amount of the Claim being less than the Indemnification Cap
minus any amounts of Claims already subject to or paid out of the
Indemnification Cap. If the Indemnifying Party is not entitled to assume and
control the defense of the Third Party Claim, the Indemnifying Party, at its
expense, may participate in the defense of the Third Party Claim if it has an
economic stake in the third Party Claim. The Indemnified
<PAGE>
Party, at such party's expense, may assume or participate in the defense of any
Third Party Claim which may have a material impact on its business or the
business relationship between the Indemnified Party and a substantial portion of
its business customers; provided that if the Indemnified Party assumes the
defense in such circumstances, the Indemnifying Party will not be bound by any
compromise or settlement effected without its consent (which shall not be
unreasonably withheld). The party that defends any Third Party Claim, shall use
its best efforts to defend same or to effect a satisfactory settlement thereof,
and shall provide the other party all information and copies of all pleadings
and other documents and correspondence relating to its defense or attempts to
effect a settlement thereof. The Indemnifying Party shall not, in the defense or
settlement of any Third Party Claim, consent to any injunctive or other
equitable relief or consent to or enter into any order, judgment or settlement
with respect thereto, without the prior written consent of the other party
hereto, such consent not to be unreasonably withheld; provided, however, if such
consent to the settlement is withheld, then the Indemnifying Party shall
thereafter have no further obligation to defend the Third Party Claim and the
Indemnifying Party's obligation for the Indemnified Liability which results from
such Third Party Claim shall be limited to the amount proposed by the
Indemnifying Party in the settlement offer. If an Indemnifying Party has the
right to assume and defend any Third Party Claim under this Section 11.8, but
shall fail to assume the defense of such Third Party Claim, the Indemnified
Party may in its sole discretion defend, settle or compromise such Third Party
Claim, without prejudice to its right to indemnification by the Indemnifying
Party hereunder. The parties hereto agree to cooperate fully with each other in
connection with the defense, negotiation or settlement of any Third Party Claim
in order to minimize the indemnified liability associated therewith and to
preserve the Parties' respective goodwill and business relationships. The
Indemnifying Party shall not, in the defense of such Third Party Claim, consent
to entry of any judgment (except with the prior written consent of the
Indemnified Party) or enter into any settlement (except with the prior written
consent of the Indemnified Party) which does not include as an unconditional
term thereof the giving by all claimants therein of a full and complete release
from all liability in respect of such Third Party Claim to the Indemnified
Party.
11.9 Arbitration. Any controversy or claim arising out of or relating to
this Agreement between any of the parties hereto shall be determined by means of
arbitration by a single arbitrator before the American Arbitration Association
in Louisville, Kentucky. All claims for arbitration must be submitted to
arbitration within 60 days after the expiration of the Response Period, but in
no event sooner than 15 days after the Response Period if the Indemnifying Party
has responded to the Claim within the Response Period. The rules of the American
Arbitration Association, as the same may be amended from time to time, shall be
applicable in the arbitration, including the demand therefor. Any decision or
award of the arbitrator shall be final and binding upon the parties. Judgment
upon the decision or award rendered by the arbitrator may be entered in any
state or federal court having jurisdiction, or application may be made to such
state or federal court for a judicial acceptance of the decision, award or any
order of enforcement, as the case may be.
11.10 Contingent Amount; Certain Agreements of the Parties.
<PAGE>
(a) The parties acknowledge that the Company presently has in operation
9 Papa John's restaurants ("Restaurants"), and has under construction, or has
designated sites (but not have them under lease) on which to construct, 5
additional restaurants (the "Additional Restaurants"). The parties also
acknowledge that the Purchase Price has been computed on the assumption that the
Additional Restaurants will be completed and opened by the Company at its sole
expense within 12 months after the Closing (the "Termination Date"). Pending
completion and opening of the Additional Restaurants, PJAM has withheld from
payment of the Purchase Price the Contingent Amount. Until paid to the
Shareholders as provided herein, the Contingent Amount shall accrue interest,
from the date of the Closing, at an annual rate of 5.5% ("Interest").
(b) PJAM agrees to use its best efforts to cause the Company to
construct and open each Additional Restaurant as soon as practicable following
the Closing. Within 30 days following the opening of an Additional Restaurant,
PJAM shall pay to the Shareholders, in those proportions set forth on Exhibit B,
$200,000 plus all accrued and unpaid Interest as of the date of such payment.
(c) In the event that, despite the best efforts of PJAM, the Company is
unable to construct and open all of the Additional Restaurants by the
Termination Date due to circumstances beyond its control, then the Shareholders'
entitlement to any amounts of the Contingent Amount or Interest with respect to
Additional Restaurants that have not been opened as of such Termination Date
shall terminate; provided if any Additional Restaurant is actually under
construction as of the Termination Date, then PJAM shall remain obligated to the
Shareholders for the payments described herein upon completion of such
Additional Restaurant in construction as of the Termination Date.
12. Miscellaneous Provisions.
12.1 Appointment of Shareholders' Agents; Actions of Shareholders
Following the Closing. Each of the Shareholders hereby appoints Douglas S.
Stephens and Michael M. Fleishman (each an "Agent" and collectively the
"Agents") as their agents and attorneys-in-fact for purposes of communicating
and dealing with PJAM and the Company with respect to matters contemplated by
this Agreement following the Closing, and agree that PJAM and the Company may
rely on any such communication from either of such Agents. Notwithstanding the
foregoing, each of the Agents and Shareholders agree that neither such Agent
shall consent to any matter which may result in liability to any Shareholder for
indemnification pursuant to Section 11 or otherwise affecting any Shareholder's
entitlement to such Shareholder's proportionate share of the Holdback Amount,
without first obtaining the consent of those Shareholders holding a majority of
the Shares prior to the Closing. Neither of the Agents shall be liable to any
Shareholder for any action or omission, except to the extent that such action or
omission constitutes willful misconduct by such Agent, and the Shareholders
shall indemnify and hold each Agent from and against any and all liabilities,
claims, actions and causes of action arising out of, or connected with, directly
or indirectly, any actions or omissions of such Agents, except to the extent
such actions or omissions constitute willful misconduct by such Agent.
<PAGE>
12.2 Expenses. Except as otherwise expressly provided in this Agreement,
the fees and expenses incurred by PJAM and the Shareholders in connection with
the preparation, execution and performance of this Agreement shall be paid one-
half by PJAM and one-half by the Shareholders (in the case of the Shareholders,
in accordance with each Shareholder's Percentage Interest).
12.3 Notice. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be deemed delivered on (a) the date of personal delivery or
facsimile transmission, (b) the first business day after the date of delivery to
a nationally recognized overnight courier service, or (c) the third business day
after the date of deposit in the United States mail, postage prepaid, by
registered or certified mail, return receipt requested in each case, addressed
as follows, or to such other address, person or entity as either party shall
designate by notice to the other in accordance herewith:
If to PJAM: PJ America, Inc.
9109 Parkway East
Birmingham, AL 35206
Attn: D. Ross Davison,
Chief Financial Officer
FAX: (205) 836-0376
With copy to: C. Edward Glasscock
Brown, Todd & Heyburn PLLC
400 West Market Street, 32nd Floor
Louisville, KY 40202-3363
FAX: (502) 581-1087
If to the Company or Douglas S. Stephens
the Shareholders: 9109 Parkway East
Birmingham, AL 35206
FAX: (205) 836-0376
and
Michael M. Fleishman
Greenebaum Doll & McDonald PLLC
3300 National City Tower
Louisville, KY 40202
FAX: (502) 587-3695
With copy to: Patrick J. Welsh, Esq.
Greenebaum Doll & McDonald, pllc
3300 National City Tower
Louisville, Kentucky 40202-3197
FAX: (502) 587-3695
<PAGE>
12.4 Exhibits; Entire Agreement. All Exhibits and Schedules to this
Agreement shall be deemed to be incorporated herein by reference and made a part
hereof as if set out in full at the place where first mentioned. As used herein
the term "Agreement" shall mean this Stock Purchase Agreement and the Exhibits
and Schedules hereto which are incorporated herein in their entirety. This
Agreement embodies the entire agreement and understanding of the parties hereto
regarding its subject matter and supersedes all prior agreements,
correspondence, arrangements and understandings relating to the subject matter
hereof. No representation, promise, inducement or statement of intention has
been made by any party which has not been embodied in this Agreement.
12.5 Amendment; Waiver. This Agreement may be amended, modified,
superseded, or canceled only by a written instrument signed by all of the
parties hereto, and any of the terms, provisions, and conditions hereof may be
waived, only by a written instrument signed by the waiving party. Failure of any
party at any time or times to require performance of any provision hereof shall
not be considered to be a waiver of any succeeding breach of such provision by
any party.
12.6 Binding Effect; Assignment. All the terms, provisions and
conditions of this Agreement shall be binding upon and shall inure to the
benefit of and be enforceable by the parties hereto and their respective heirs,
legal representatives, successors and assigns, provided, however, that this
Agreement shall not be assigned by PJAM without the prior written consent of the
Shareholders.
12.7 Captions. The captions in this Agreement are included for purposes
of convenience only and shall not be considered a part of the Agreement in
construing or interpreting any provision hereof.
12.8 Severability of Provisions. If any provision of this Agreement or
the application thereof to any person or circumstance shall to any extent be
held in any proceeding to be invalid or unenforceable, the remainder of this
Agreement, or the application of such provision to persons or circumstances
other than those to which it was held to be invalid or unenforceable, shall not
be affected thereby, and shall be valid and be enforceable to the fullest extent
permitted by law, but only if and to the extent such enforcement would not
materially and adversely frustrate the parties' essential objectives as
expressed herein.
12.9 Confidentiality.
(a) Failure to mark any of the Information as non-public, proprietary or
confidential information shall not affect its status as part of the Information
under the terms of this Agreement.
(b) None of the parties nor their respective agents or employees shall,
without the prior consent of the other party, disclose or use any such
Information, in whole or in part, except in connection with the performance of
the transactions described in this Agreement, and except as may be required by
law or applicable regulatory law or exchange requirements.
<PAGE>
(c) Unless otherwise required by law, each of the parties agrees that
neither of them shall disclose any Information acquired as a result of this
Agreement, to any person or entity, other than its respective counsel and other
representatives, and such other third parties, such as bankers and lessors, with
whom it must communicate to consummate the transactions described by this
Agreement.
(d) PJAM's obligation of confidence with respect to any Information
relating to the Company shall cease upon consummation of the transactions
described herein. If the parties do not consummate the transactions described
herein, each party shall promptly upon termination of this Agreement redeliver
to each other all copies, notes, compilations, extracts and other records or
written material relating to the Information.
12.10 Governing Law. This Agreement shall be governed by, and shall be
construed and enforced in accordance with, the laws of the State of Delaware.
12.11 Publicity; No Disclosure. Before the Closing, no party to this
Agreement shall make any press release or make any other public announcement
regarding the existence of this Agreement or the transactions described in this
Agreement, without prior consultation with and consent of the other parties to
this Agreement, except as may be required to comply with applicable securities
laws or exchange regulations.
12.12 Post-Closing Access. Following the Closing, PJAM shall cause the
Company to provide each of the Shareholders reasonable access to the books and
records of the Company related to periods prior to Closing for purposes of
preparing such Shareholder's federal, state and local income tax returns and for
such other purposes as may be reasonably requested by such Shareholder.
12.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
In Witness Whereof, the parties have entered into this Agreement as of the
date first written above.
PJ America, Inc.
By:______________________________
Title:___________________________
("PJAM")
PJ Louisiana, Inc.
<PAGE>
By:____________________________
Title:_________________________
("Company")
-------------------------------
Douglas S. Stephens
-------------------------------
Robert W. Curtis, Jr.
-------------------------------
Michael M. Fleishman
-------------------------------
Merida Sherman
-------------------------------
Nicholas Sherman
-------------------------------
Richard F. Sherman
-------------------------------
Frank O' Keener
-------------------------------
Stephen P. Langford
<PAGE>
EXHIBIT 10.35
-----------------------------------------
PURCHASE AGREEMENT
AMONG
-----------------------------------------
PJ AMERICA, INC.,
OHIO PIZZA DELIVERY CO., INC.,
PJ UTAH, LLC,
AND
MEMBERS
September 3, 1998
<PAGE>
TABLE OF CONTENTS
Section Page
1. Purchase and Sale of Company interests; Effective Date.................. 1
1.1 Purchase and Sale.................................................. 1
1.2 Effective Date..................................................... 1
2. Purchase Price; Payment; 754 Election................................... 1
2.1 Purchase Price..................................................... 1
2.2 Payment of Purchase Price.......................................... 1
2.3 754 Election....................................................... 2
3. Certain Representations and Warranties of Members....................... 2
3.1 Title to Shares; Share Restrictions................................ 2
3.2 Authority.......................................................... 2
3.3 No Other Interests................................................. 2
3.4 No Encumbrances On Assets or Properties of Company................. 2
3.5 Company Distributions and Compensation............................. 2
4. Representations and Warranties of Buyers................................ 2
4.1 Authorization...................................................... 3
4.2 No Other Representations and Warranties by Members................. 3
5. Covenants of the Parties................................................ 3
5.1 Payment of Development Debt........................................ 3
5.2 Release of Other Guarantees........................................ 3
5.3 Mutual Release..................................................... 3
5.4 Indemnity by the Members........................................... 3
5.5 Indemnity by Buyers................................................ 4
5.6 Limitations on Members' Indemnification Obligations................ 4
5.7 Preparation of Tax Returns......................................... 4
6. Miscellaneous Provisions................................................ 4
6.1 Expenses........................................................... 4
6.2 Notice............................................................. 4
6.3 Exhibits; Entire Agreement......................................... 5
6.4 Amendment; Waiver.................................................. 5
6.5 Binding Effect; Assignment......................................... 6
6.6 Captions........................................................... 6
6.7 Severability of Provisions......................................... 6
6.8 Governing Law...................................................... 6
-i-
<PAGE>
TABLE OF CONTENTS
Section Page
6.9 Publicity; No Disclosure......................................... 6
6.10 Post-Closing Access.............................................. 6
6.11 Counterparts..................................................... 6
-ii-
<PAGE>
EXHIBITS
Description Exhibit
Purchase Price Payments............................................... A
-iii-
<PAGE>
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement") is entered into as of September 3,
1998, by and among (i) PJ America, Inc., a Delaware corporation ("PJAM"), (ii)
Ohio Pizza Delivery Co., Inc., an Ohio corporation ("OPD"), (iii) PJ Utah, LLC,
a Utah limited liability company ("Company"), and (iv) the Members of the
Company identified on the signature pages hereto (individually, a "Member" and
collectively, the "Members").
Recitals:
A. The Company owns, operates and manages restaurants as a franchisee of
Papa John's International Inc. ("PJI"). The Members own all of the issued and
outstanding membership interests of the Company ("Company Interests").
B. PJAM and OPD (collectively, "Buyers") desire to purchase from the
Members, and the Members desire to sell to Buyers, for the consideration and
pursuant to the terms, conditions and covenants of this Agreement, all of the
Company Interests.
Agreement:
Now, Therefore, the parties hereby agree as follows:
1. Purchase and Sale of Company interests; Effective Date.
1.1 Purchase and Sale. Upon the terms set forth herein, (i) PJAM hereby
purchases and acquires 20% of all Company Interests held by each Member, (ii)
OPD hereby purchases and acquires 80% of all Company Interests held by each
Member, and (iii) each Member hereby sells, transfers, conveys, assigns and
delivers to Buyers, all the Company Interests owned by such Member.
1.2 Effective Date. Pursuant to an agreement of the parties dated August
24, 1998, the Closing of the purchase and sale of the Company Interests shall,
for all purposes, be effective as of 12:01 A.M., local time, on August 24, 1998.
2. Purchase Price; Payment; 754 Election.
2.1 Purchase Price. The aggregate purchase price ("Purchase Price") for
all of the Company Interests is $815,002.00.
2.2 Payment of Purchase Price. Simultaneously with the execution hereof,
the Purchase Price has been paid to the Members in those amounts set forth on
Exhibit A attached hereto, by delivery of immediately available funds to an
account designated by each Member. Each Member hereby acknowledges the receipt
and sufficiency of the amount of the Purchase Price paid to such Member as set
forth in Exhibit A.
<PAGE>
2.3 754 Election. In connection with the transfer of Company Interests
hereunder, the parties agree to make such elections permitted under Section 754
of the Internal Revenue Code of 1986, as amended (the "Code") so as to cause the
basis of the Company's property to be adjusted, pursuant to section 743(b) of
the Code.
3. Certain Representations and Warranties of Members. Each of the Members
hereby severally represents and warrants to Buyers as follows:
3.1 Title to Shares; Share Restrictions. The Member is the sole record,
lawful and beneficial owner of the Company Interests conveyed by such Member to
Buyers hereby and has good and marketable title to such Company Interests. The
Member owns such Company Interests free and clear of all "Encumbrances" (which,
as used in this Agreement, shall mean any charge, claim, community property
interest, condition, equitable interest, lien, mortgage, easement, servitude,
right-of-way, option, pledge, security interest, right of first refusal or
restriction of any kind, including any restriction on use, voting, transfer,
receipt of income or exercise of any other attribute of ownership), other than
restrictions on transfer under applicable state and federal securities laws, and
any restrictions under any shareholder or similar agreement among the Members
and the Company, or any of them, which each Member agrees are hereby waived.
3.2 Authority. The Member has full right, power, authority and capacity
to execute, deliver and perform this Agreement in accordance with its terms.
This Agreement constitutes the valid and legally binding obligation of the
Member, enforceable against the Member in accordance with its terms.
3.3 No Other Interests. The Company Interests conveyed by such Member to
Buyers hereby constitutes such Member's sole and complete interest in the
Company. Such Member has never conveyed any portion of such Member's membership
interest in the Company. To the knowledge of each Member, the Members constitute
the only persons or entities holding or having any right to Company Interests.
3.4 No Encumbrances On Assets or Properties of Company. Such Member has
not subjected any of the assets or properties of the Company to any Encumbrance,
except in the case of Douglas S. Stephens ("Stephens"), D. Ross Davison
("Davison") and Dwayne Hunt in connection with their management of the Company
for PJAM.
3.5 Company Distributions and Compensation. Each Member acknowledges that
he is entitled to no further distributions or compensation from the Company in
his capacity as a Member or in any other capacity, except that Stephens and
Davison may be entitled to compensation for services rendered to the Company in
their status as employees of the Company following the date hereof.
4. Representations and Warranties of Buyers. Each Buyer represents and
warrants to the Company and the Members as follows:
<PAGE>
4.1 Authorization. This Agreement has been duly executed and delivered by
such Buyer and constitutes its legal, valid and binding obligation, enforceable
in accordance with the terms of this Agreement. Such Buyer has full power and
authority, corporate and otherwise, to enter into and to deliver this Agreement
and perform the transactions described herein.
4.2 No Other Representations and Warranties by Members. Each Buyer
acknowledges that, except as expressly set forth in Section 3 hereof, the
Members make no representations and warranties regarding the Company, its
business, its assets or properties. Each Buyer represents and warrants to the
Members that, as a result of PJAM's management of the Company and its business
pursuant to various agreements between PJAM and the Company, each Buyer is
intimately familiar with the Company and its operations and, in fact, has much
more knowledge then do the Members regarding the Company's business, assets and
liabilities.
5. Covenants of the Parties.
5.1 Payment of Development Debt. Buyers acknowledge that the Company is
indebted to PJI in the approximate principal amount of $2,500,000 with respect
to loans and credit extended to the Company by PJI for start-up, instruction and
operating expenses of the Company (the "Development Debt"), and that payment of
the Development Debt is guaranteed by certain of the Members. Promptly upon the
execution hereof, Buyers shall take all necessary steps to cause the Company to
pay to PJI the entire outstanding amount (including accrued and unpaid interest
thereon) of the Development Debt and to release the Members from their guarantee
of the Development Debt.
5.2 Release of Other Guarantees. Buyers acknowledge that certain of the
Members have guaranteed the Company's obligations under certain of the Company's
leases and contracts and under certain debt of the Company to PJAM
(collectively, the "Member Guarantees"). Buyers hereby assume and agree to
perform all of the Members' obligations under the Member Guarantees (and release
the Members from their Member Guarantees of the Company's debt to PJAM), and
shall indemnify the Members with respect thereto pursuant to the provisions of
Section 5.5.
5.3 Mutual Release. PJAM, OPD, and the Company, on the one hand, and each
of Members, on the other hand, for themselves, and their respective successors,
assigns, heirs and legal and personal representatives, hereby release and
forever discharge the other from all claims, demands, damages, liabilities,
actions, causes of actions, rights, agreements, promises, losses, costs,
expenses and controversies of very kind and description, matured or unmatured,
liquidated or unliquidated, contingent or otherwise, which they now have, may
now have, or may have had or may hereafter have against the other, arising out
of or connected with, directly or indirectly, the Company, its operations,
assets and properties, or in the case of the Members, such Members' status as a
member of the Company; provided, however, that the foregoing release shall not
be deemed to affect any party's rights or obligations under this Agreement, or
any rights to indemnification under the Company's organizational documents.
<PAGE>
5.4 Indemnity by the Members. Each Member, severally, shall defend and
indemnify Buyers and shall hold Buyers and the Company harmless, from and
against the following:
(a) all liabilities, debts, obligations, losses, damages,
deficiencies, penalties, claims, actions, suits, proceedings, investigations,
demands, assessments, orders and judgments (whether fixed, contingent, accrued,
absolute or otherwise) incurred by Buyers or the Company resulting from, arising
out of, or in connection with any misrepresentation or breach of a
representation or warranty of such Member contained in Section 3 (a "Section 3
Indemnity") (which shall be the sole and exclusive obligation of the Member who
has misrepresented or breached the representation or warranty giving rise to the
Section 3 Indemnity, and no other Member and
(b) any and all costs and expenses incident to any of the foregoing,
including, but not limited to, reasonable attorneys' and accountants' fees.
5.5 Indemnity by Buyers. Buyers shall defend and indemnify the Members
and hold them harmless from and against the following:
(a) all liabilities, debts, obligations, losses, damages,
deficiencies, penalties, claims, actions, suits, proceedings, investigations,
demands, assessments, orders and judgments (whether fixed, contingent, accrued,
absolute or otherwise) incurred by the Members resulting from, arising out of,
or in connection with (i) any inaccurate representation or warranty or the
breach of any representation or warranty of Buyers contained in this Agreement,
or (ii) any breach or default in the performance by Buyers of any agreement,
covenant or undertaking which either is to perform under this Agreement; and
(b) any and all costs and expenses incident to any of the foregoing,
including, but not limited to, reasonable attorneys' and accountants' fees.
5.6 Limitations on Members' Indemnification Obligations'. In no event
shall the aggregate liability of any individual Member for a Section 3 Indemnity
exceed an amount equal to that portion of the Purchase Price paid to such
Member, as set forth in Exhibit A.
5.7 Preparation of Tax Returns. Buyers shall cause to be prepared and
deliver to each Member, at Buyers' expense, the Company's federal and applicable
state tax returns (including schedules K-1 for each Member) for the Company's
tax year ending as a result of the transfer of Company Interests to Buyers
pursuant to the provisions hereof.
6. Miscellaneous Provisions.
6.1 Expenses. Except as otherwise expressly provided in this Agreement,
the fees and expenses incurred by Buyers and the Members in connection with the
preparation, execution and performance of this Agreement shall be paid Buyers.
6.2 Notice. All notices, requests, demands and other communications
required or permitted to be given or made under this Agreement shall be in
writing and shall be deemed delivered on (a) the date of personal delivery or
facsimile transmission, (b) the first business day after the date
<PAGE>
of delivery to a nationally recognized overnight courier service, or (c) the
third business day after the date of deposit in the United States mail, postage
prepaid, by registered or certified mail, return receipt requested in each case,
addressed as follows, or to such other address, person or entity as either party
shall designate by notice to the other in accordance herewith:
<TABLE>
<S> <C>
If to PJAM or OPD: PJ America, Inc.
9109 Parkway East
Birmingham, AL 35206
Attn: D. Ross Davison,
Chief Financial Officer
FAX: (205) 836-0376
With copy to: Scott Dolson
Brown, Todd & Heyburn PLLC
400 West Market Street, 32nd Floor
Louisville, KY 40202-3363
FAX: (502) 581-1087
If to the Company or Douglas S. Stephens
the Members: 9109 Parkway East
Birmingham, AL 35206
FAX: (205) 836-0376
and
Michael M. Fleishman
Greenebaum Doll & McDonald PLLC
3300 National City Tower
Louisville, KY 40202
FAX: (502) 587-3695
With copy to: Patrick J. Welsh, Esq.
Greenebaum Doll & McDonald, pllc
3300 National City Tower
Louisville, Kentucky 40202-3197
FAX: (502) 587-3695
</TABLE>
6.3 Exhibits; Entire Agreement. The Exhibit to this Agreement shall be
deemed to be incorporated herein by reference and made a part hereof as if set
out in full at the place where first mentioned. As used herein the term
"Agreement" shall mean this Stock Purchase Agreement and the Exhibit hereto.
This Agreement embodies the entire agreement and understanding of the parties
hereto regarding its subject matter and supersedes all prior agreements,
correspondence, arrangements and understandings relating to the subject matter
hereof. No representation, promise, inducement or statement of intention has
been made by any party which has not been embodied in this Agreement.
<PAGE>
6.4 Amendment; Waiver. This Agreement may be amended, modified,
superseded, or canceled only by a written instrument signed by all of the
parties hereto, and any of the terms, provisions, and conditions hereof may be
waived, only by a written instrument signed by the waiving party. Failure of any
party at any time or times to require performance of any provision hereof shall
not be considered to be a waiver of any succeeding breach of such provision by
any party.
6.5 Binding Effect; Assignment. All the terms, provisions and conditions
of this Agreement shall be binding upon and shall inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, legal
representatives, successors and assigns.
6.6 Captions. The captions in this Agreement are included for purposes of
convenience only and shall not be considered a part of the Agreement in
construing or interpreting any provision hereof.
6.7 Severability of Provisions. If any provision of this Agreement or the
application thereof to any person or circumstance shall to any extent be held in
any proceeding to be invalid or unenforceable, the remainder of this Agreement,
or the application of such provision to persons or circumstances other than
those to which it was held to be invalid or unenforceable, shall not be affected
thereby, and shall be valid and be enforceable to the fullest extent permitted
by law, but only if and to the extent such enforcement would not materially and
adversely frustrate the parties' essential objectives as expressed herein.
6.8 Governing Law. This Agreement shall be governed by, and shall be
construed and enforced in accordance with, the laws of the State of Delaware.
6.9 Publicity; No Disclosure. Before the Closing, no party to this
Agreement shall make any press release or make any other public announcement
regarding the existence of this Agreement or the transactions described in this
Agreement, without prior consultation with and consent of the other parties to
this Agreement, except as may be required to comply with applicable securities
laws or exchange regulations.
6.10 Post-Closing Access. Following the Closing, Buyers shall cause the
Company to provide each of the Members reasonable access to the books and
records of the Company related to periods prior to Closing for purposes of
preparing such Shareholder's federal, state and local income tax returns and for
such other purposes as may be reasonably requested by such Shareholder.
6.11 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
In Witness Whereof, the parties have entered into this Agreement as of the
date first written above.
PJ America, Inc.
By:
------------------------------
Title:
---------------------------
("PJAM")
Ohio Pizza Delivery Co., Inc.
By:
------------------------------
Title:
---------------------------
("OPD")
PJ Utah, LLC
By:
------------------------------
Title:
---------------------------
("Company")
---------------------------------
Richard F. Sherman
---------------------------------
Frank O. Keener
---------------------------------
Stephen P. Langford
---------------------------------
Douglas S. Stephens
---------------------------------
Martin H. Hart
---------------------------------
Jack A. Laughery
<PAGE>
---------------------------------
Michael J. Grisanti
---------------------------------
Michael M. Fleishman
---------------------------------
Dwayne Hunt
---------------------------------
James S. Riekel
---------------------------------
D. Ross Davison
<PAGE>
EXHIBIT A
---------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Member Type Interest Purchase Price
================================================================================
<S> <C> <C>
Richard F. Sherman Class A $170,616.00
- --------------------------------------------------------------------------------
Frank O. Keener Class A $146,554.00
- --------------------------------------------------------------------------------
Stephen P. Langford Class A $ 80,933.00
- --------------------------------------------------------------------------------
Douglas S. Stephens Class A $ 80,933.00
- --------------------------------------------------------------------------------
Martin H. Hart Class A $ 67,809.00
- --------------------------------------------------------------------------------
Jack A. Laughery Class A $ 89,683.00
- --------------------------------------------------------------------------------
Michael J. Grisanti Class A $ 67,809.00
- --------------------------------------------------------------------------------
Michael M. Fleishman Class A $100,619.00
- --------------------------------------------------------------------------------
Dwayne Hunt Class B $1.00
- --------------------------------------------------------------------------------
James S. Riekel Class A $ 10,044.00
- --------------------------------------------------------------------------------
D. Ross Davison Class B $1.00
- --------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from PJ
America's consolidated financial statements for the year ended December 27, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1998
<PERIOD-START> DEC-29-1997
<PERIOD-END> DEC-27-1998
<CASH> 5,026
<SECURITIES> 13,346
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 549
<CURRENT-ASSETS> 14,295
<PP&E> 26,210
<DEPRECIATION> (5,064)
<TOTAL-ASSETS> 48,813
<CURRENT-LIABILITIES> 6,116
<BONDS> 0
0
0
<COMMON> 58
<OTHER-SE> 41,688
<TOTAL-LIABILITY-AND-EQUITY> 48,813
<SALES> 68,586
<TOTAL-REVENUES> 68,586
<CGS> 22,153
<TOTAL-COSTS> 58,474
<OTHER-EXPENSES> 3,466
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (916)
<INCOME-PRETAX> 7,562
<INCOME-TAX> 2,495
<INCOME-CONTINUING> 5,067
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,067
<EPS-PRIMARY> 0.88
<EPS-DILUTED> 0.86
</TABLE>
